Despite our best efforts to save money and prepare for the worst, sudden job loss, medical emergency, or other hardship can leave us with considerable financial difficulties. While many people may make the mistake of remaining in denial about their situation and trying to pay off credit cards with other credit cards, hundreds of thousands of people seek financial freedom by filing for bankruptcy. There are two primary types of bankruptcy that individual consumers can benefit from, Chapter 7 and Chapter 13 bankruptcy, and knowing the difference is the first step in pursuing the option that can help you the most.
How These Options Can Benefit You
So you can understand the differences between Chapter 7 and 13 bankruptcy, you need to understand the two types of debt people have: secured and unsecured debt. Secured debt refers to debt that has some collateral, like mortgages and car loans. Unsecured debt is debt that has no collateral, like personal loans, credit card debt, medical debt and unpaid utility bills.
Each of these bankruptcy options manages these types of debt differently, for example:
- Chapter 7 bankruptcy is the option that can discharge your unsecured debt. You will need to qualify for this option by meeting a certain threshold of debt versus income. You also cannot go on a shopping spree and expect to discharge that amassed debt through bankruptcy. This option has the potential to discharge most or all of your unsecured debt (though student loans are often exempt from this).
- Chapter 13 bankruptcy is structured more as a repayment plan. This option consolidates your secured debts into a three to a five-year repayment plan and often discharges the remaining debt if you make all of your payments. This option can also discharge unsecured debt.
Filing for bankruptcy does not mean you will lose everything in the process. Most applicants are able to keep necessary assets like their primary home, vehicle and similar assets. A bankruptcy attorney can help you understand what you will likely be able to keep and guide you through the application process.
You Have Options With Your Debt
If you dread opening the mailbox because of overdue bills and are worried about making ends meet while paying endless debt, bankruptcy may be able to offer you the freedom you are looking for. Both Chapter 7 and 13 bankruptcy have a lot to offer applicants, and it only takes a moment to begin the process of pursing the freedom you deserve.