The Pros and Cons of Filing for Chapter 7 or Chapter 13 Bankruptcy
Bankruptcy is a tough decision to make, but sometimes it's the best option for those facing financial hardship. The two most commonly filed types of bankruptcy in the United States are Chapter 7 and Chapter 13. Both have different requirements and outcomes, so it's important to understand the pros and cons of each before making a decision.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as "liquidation bankruptcy" because it involves liquidating non-exempt assets to pay back creditors. It's a common option for those with little or no income and who can't afford to keep up with debt payments.
Pros
- Eliminates most unsecured debt, such as credit card debt and medical bills
- Provides immediate relief from creditor harassment and wage garnishment
- Offers a relatively quick process, typically taking 3-6 months
Cons
- May require the liquidation of assets, including homes and vehicles
- Does not eliminate all types of debt, such as student loans and tax debt
- May harm credit score and remain on credit report for up to 10 years
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also known as the "wage earner's plan" because it involves creating a repayment plan to pay back debt over a 3-5 year period. It's a good option for those with a steady income and who want to keep their assets.
Pros
- Allows individuals to keep their assets while still paying back creditors
- Stops foreclosure proceedings and allows individuals to catch up on missed payments
- May protect co-signers and individuals with non-dischargeable debt, such as taxes and child support
Cons
- Requires a steady income to create and maintain the repayment plan
- May take longer to complete, typically taking 3-5 years
- May harm credit score and remain on credit report for up to 7 years
Conclusion
Filing for bankruptcy is a serious decision that should not be taken lightly. It's important to weigh the pros and cons of both Chapter 7 and Chapter 13 bankruptcy and consider the long-term effects on credit and assets. Consulting with a bankruptcy attorney can help individuals make an informed decision based on their individual circumstances.