Many different circumstances can cause you to fall behind in paying your bills including the loss of employment, a sudden injury, or a divorce. When income falls sharply or vanishes altogether, your finances can take a serious blow and you may find yourself unable to pay your debts altogether. Bankruptcy may be the answer, but choosing between Chapter 7 and Chapter 13 can be confusing. Understanding the differences between each and which factors might affect your finances may help you make the best choice for your individual situation.
1. The Amount of Debt You Owe
The main difference between Chapter 7 and Chapter 13 bankruptcy is liquidation versus reorganization, so how much debt you owe may help you make the choice as to which might be more effective for you. If you choose Chapter 7, you must pass what is known as a “means test,” which gauges the value of your disposable income. Chapter 13 requirements are based on the amount of secured and unsecured debt you currently carry.
2. Whether You Want to Keep Property
Chapter 7 bankruptcy sells some of your items of value to pay your debts, including real estate and vehicles. If you want to keep your home and car, you may want to choose Chapter 13 instead, which regorganizes your debt and creates a payment plan for you to repay what you owe. While Chapter 13 does allow for some exemptions, you may not be able to keep all the property you want.
3. How Fast You Want to Resolve Debt
Both Chapter 13 and Chapter 7 bankruptcy plans help you resolve your debt issues; however, each does so in different time frames. Chapter 7, which liquidates your assets to pay off your debtors, takes up to six months to complete in most cases. Chapter 13 creates a long-term payment plan, which may take up to five years to complete.
4. Which Benefits Work for You
Deciding on a bankruptcy plan can be daunting, but in the end, which benefits meet your needs can help you make an informed decision. For example, if you want to catch up on missed credit card payments and mortgage debt, Chapter 13 may be the better choice. If you want to resolve the problem quickly, then the processes that come with Chapter 7 may help you.
Choosing the right type of bankruptcy that meets your needs can be a stressful task, but you do not have to go through the process alone. Reach out to a lawyer, like a Chapter 7 bankruptcy lawyer from the Law Offices of Ronald I. Chorches, today for further advice or to make an appointment for an initial consultation.