Filing for Bankruptcy: Chapter 7 vs. Chapter 13

At some point the calls from collectors have to stop, or so you keep telling yourself. But the calls keep coming despite your best efforts to make peace with your creditors and to reach a workable agreement on your mountain of outstanding debt. When the calls from collectors keep coming, and there seems to be no other way to resolve your debt issues, it may be time to consider filing for bankruptcy.

The decision to file for bankruptcy can be a tough one to make, but if you are considering doing so, you should gain at least a basic understanding of your options. There are generally two types of bankruptcy you can file for, Chapter 7 and Chapter 13, and each works in a different fashion to help you make peace with your creditors and regain your financial footing.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the most common type of bankruptcy and is for people who simply can no longer pay their bills. While the legal procedure allows debt to be forgiven and alleviated immediately, there is nothing more damaging to your credit history, as it stays on your record for 7-10 years. This means that loan and credit lines you receive in the future will be more expensive, if you are able to get approved at all.

This type of bankruptcy is the quickest and is available to individuals, married couples, corporations and partnerships. Certain debts will remain after a bankruptcy (such as student loans, child support, and taxes) but most will be forgiven.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a restructuring of debt where the creditor repays the creditor under a supervised plan, usually within five years. The plan mapped out by the courts gives the debtor better terms, such as lower or no interest rates.

There is a distinct advntage of Chapter 13 bankruptcy over Chapter 7. Specifically, the debtor has the opportunity to keep their property and may be given a full discharge of the bankruptcy (as long as all the payments are made in full), thus saving their credit rating from ruin.

In order to qualify for this type of bankruptcy, the debtor must have a regular income and cannot open any credit while the case is in progress, unless otherwise approved by the court.

To fully understand your bankruptcy options, it is always a good idea to consult with a professional who specializes in bankruptcy law. This will ensure that you will not file bankrupcty unless it is in your best financial interest, and that the bankrupcty filing you choose fits your particular situation.