When you are struggling financially, it is easy to feel like you have few options. Bankruptcy may sound like an intimidating term, like a last resort that will destroy your credit and financial life. However, that is simply not true. Bankruptcy can be a powerful and useful tool when used appropriately. The many different types of bankruptcy offer individuals and business owners a variety of options that can address many different situations. Two of the most common types of bankruptcy are Chapter 7 and Chapter 13. Here, we discuss some of the main differences between the two to help you get a better understanding of what bankruptcy can accomplish and what may be right for you and your family.
Chapter 13 Bankruptcy Provides a Consolidated Plan for Debt Elimination
A Chapter 13 bankruptcy is known as a wage earner’s plan because it requires the filer to have a steady stream of income. While that income may not be enough to keep up with bills, the bankruptcy process will examine and reorganize your debt to simplify and even reduce payments.
Some of the key components of a Chapter 13 bankruptcy include:
- Reorganization of debt. All debt is examined together. It can be consolidated or otherwise modified to make it possible to make payments.
- Repayment over three to five years. The main component of a Chapter 13 bankruptcy is the payment plan. Filers work with their attorney and a trustee to design and approve a plan that will address the appropriate creditors and determine a timeframe and amount for repayment of debt.
- Retain property. Property is protected under a Chapter 13 bankruptcy as long as monthly payments are made on time.
- Protects co-signers. If you have debt that includes a co-signer or co-debtor, your Chapter 13 bankruptcy will not affect him.
- Allows for past and future bankruptcy. It is possible to file for Chapter 13 bankruptcy even if you have filed for another bankruptcy recently.
Chapter 7 Bankruptcy Can Discharge Debt for a Fresh Start
Chapter 7 bankruptcy is typically appropriate for those who do not have a steady stream of income or otherwise simply do not have the ability to pay. Filers must meet certain income limits; those who make too much will likely have to pursue a Chapter 13 bankruptcy.
Some of the main elements of a Chapter 7 bankruptcy include:
- Liquidation of assets. Though it can be possible to retain your home and car, a Chapter 7 filing does involve decisions about selling assets to obtain money to pay debts.
- Discharge of debt. This is the primary benefit of a Chapter 7 bankruptcy. Debt is erased at the end of the process. Debtors do not have to pay, and creditors will not continue to seek payment.
- Quick timeframe for bankruptcy process. While it can take years to fulfill the obligations of a Chapter 13 bankruptcy, the Chapter 7 process is more straightforward and typically takes only three to five months.
If you or someone you love is struggling under the weight of debt, bankruptcy may offer a way out of the stress and suffering. Bankruptcy can be an effective tool to address your debt and find a fresh start to your financial life. Contact us today to learn more about the bankruptcy process in Virginia and find out what options may be available to you.