The bankruptcy process is riddled with obstacles including which type of bankruptcy to file. Depending on your financial situation, there may be more benefits and fewer risks in filing for Chapter 13 over Chapter 7. However, the last thing you want to do when considering bankruptcy is make a quick, uneducated decision. Knowing the differences between the two types of personal bankruptcy is the best decision you can make as a consumer. An informed decision is always the right one.
Getting In The Door
It is important to know that not everyone qualifies for bankruptcy. This is especially true for Chapter 7 cases, which have strict income requirements for filer eligibility. In general, qualifying for Chapter 13 much easier for debtors. There are only a few restrictions such as the filer must be filing on personally accrued debts and the debts must be less than $360,475 for unsecured debt and $1,081,400 for secured debts. Qualifications are more lenient for Chapter 13 cases in order to encourage people to repay their debts rather than have them eliminated in Chapter 7. After all any debts you accumulate are your personal and civil responsibility. However, the bankruptcy courts are understanding and realize that there are times in which people need a little help resolving their debts.
Resolving Debts
One of the biggest advantages of Chapter 13 is its ability to resolve both secured and unsecured debts, whereas only unsecured debts are easily resolved in Chapter 7 cases. Since debtors repay their debts in Chapter 13, any assets that are part of a secured debt claim are easily protected. Chapter 7 filers find that they may be forced to give up the asset if they cannot repay, which is ultimately not what people want to do. Further, Chapter 13 cases may even be able to lower overall principal debt balances on some secured debts. This is possible when qualified debts are separated and a portion of the mortgage or car loan debt is split into an unsecured debt to be eliminated. When this happens debtors are left with the responsibility of repaying only the remaining portion of the secured debt. This benefit of Chapter 13 can be extremely helpful when debtors owe more than what the asset is worth on a secured debt.
Protecting Your Credit
One of the most notable features of a Chapter 13 filing is the ability to minimize credit damage. Although a bankruptcy can save and even improve credit standings after a discharge, the filing is reported for several years. However, most Chapter 13 filings fall off within 7 years, while a Chapter 7 can remain for up to 10 years.
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