Declaring bankruptcy is a complicated legal process that affects your credit and finances for a long time.
There are different types of bankruptcy filings. It is crucial to determine the right option for your circumstances before you move forward.
What is a Chapter 7 bankruptcy?
A Chapter 7 bankruptcy is a legal liquidation that provides a way to discharge most unsecured debt. It involves selling some of your nonexempt property to pay the bills you owe. This type is a good option for people who do not have disposable income or sufficient equity to repay debts.
Some things to consider include:
- It can reduce your monthly repayment amounts
- It typically takes about four months to complete
- It can stop debt collectors from contacting you
- It remains on your credit for up to ten years
- You may lose non-exempt assets
What is a Chapter 13 bankruptcy?
A Chapter 13 bankruptcy is a reorganization option that allows you to retain secured assets like your car or house. This type is for people who have reliable incomes. Chapter 13 requires you to create a long-term repayment plan that will pay off your debt in three to five years. You make one payment each month for distribution among your creditors.
Some key points to consider:
- It can stop the foreclosure process
- It helps you repay your debt
- It may strain your monthly budget
- It typically takes up to five years
- It stays on your credit rating for seven years
- It requires consistent monthly payments
Choosing to file bankruptcy is a serious decision with many financial consequences. It is critical to understand the bankruptcy laws and weigh the pros and cons of each filing type before taking legal action.