Managing personal finances has continued to be more challenging over the past decade. In this time, people have continued to deal with rapid increases in the costs of healthcare, education, and housing coupled with general increases in costs of living. At the same time, the economy has been very volatile and wages, on average, have not kept up with increased costs.
For those that find themselves in debt without a plan to get out, a good option to consider is to file for bankruptcy. When you do file for bankruptcy, it can help you get a fresh start and reorganize your personal debts. For those that are considering filing for bankruptcy, there are various options to consider. The two most common options continue to be to file either Chapter 7 or Chapter 13 bankruptcy. It is important to understand the main differences between the two options when you are trying to determine which is right for your situation.
What Happens to Debts and Assets
The main difference between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy is what will happen to your debts and assets. Chapter 7 tends to be the most common form of bankruptcy as it is a full liquidation and will lead to a discharge of most unsecured debts. This means that medical bills, credit card debt, and unsecured personal loans can be completely discharged. However, many of your personal assets will be liquidated to offset the amount of money that you owe.
A Chapter 13 bankruptcy is more focused on a full restructure of your debt. Generally, this process will require more work to determine what you can and cannot afford to repay. It will often result in a consolidation of your unsecured debts and could provide you with more affordable interest rates. You generally will enter into a repayment plan to repay most of the outstanding debts. If you stay current on the repayment plan, the balance could be discharged.
Eligibility Requirements
To file for bankruptcy, you will need to meet some form of eligibility requirement. The actual eligibility for the filing will vary based on the type of bankruptcy that you file. If you were to file for a Chapter 7 bankruptcy, you will need to pass a certain means test that will factor in your income, assets, and debts. If you pass the means test and it is generally determined that you cannot pay back the debts, you could qualify for Chapter 7.
To quality for Chapter 13 bankruptcy, you will also need to pass an eligibility test. Generally, you are not able to qualify for this type of bankruptcy if you have more than roughly $420,000 of unsecured debt or $1.25 million of secured debt. This figure can change each year and can vary based on certain circumstances.
Time to Complete and Impact on Credit Report
The process and timeline of the two types of bankruptcy are also much different. A Chapter 7 bankruptcy typically moves very quickly, and many debtors will find that it is done within a few months of filling. A Chapter 13 filing can take much longer to complete as the entire process will include the full repayment of the outstanding loan, which can take between three and five years.
Your bankruptcy filing will also have an impact on your overall credit. For a Chapter 7 filing, it will remain on your credit report and public records for up to 10 years. With Chapter 13, it will be on your report for just 7 years from the date of filling. During this time, it can be hard to qualify for mortgages and other types of debt. Under Chapter 13, as you will be making a loan payment to repay your debts, you could see your score improve while the bankruptcy remains on your record. There are other ways that you can work to boost your credit during this time, such as taking out a secured loan or having a co-signor.
Benefits and Drawbacks of Each Option
If you want to file for bankruptcy, it is important that you properly consider the ultimate advantages and disadvantages of each option.
Chapter 7 Pros and Cons
A Chapter 7 bankruptcy filing offers several advantages to debtors. The main advantage that comes with this type of filing is that it can lead to a complete discharge of your debt. This can immediately clear out your unsecured debt, which will allow you to start rebuilding your personal financial life sooner. Also, the entire process can be quite quick and over within just a few months.
While there are advantages that come with filing for Chapter 7, there are disadvantages as ell to consider. The main disadvantage of filing this form of bankruptcy is that it will lead to a complete liquidation of your non-exempt assets. While bank accounts and other liquid assets will be sold to pay down the debts, you are often able to keep your home, retirement accounts, and other exempt assets.
Chapter 13 Pros and Cons
Similar to a Chapter 7 filing, Chapter 13 comes with various pros and cons. The main advantage of a Chapter 13 filing is that it will not necessarily liquidate any of your assets. Instead, it will focus on restructuring your debt in a way that you can repay the majority of it. Depending on how your case is structured, you still may have some of your debts cleared.
There are various disadvantages that come with a Chapter 13 bankruptcy filing to be aware of. The main drawback is that you will not have any debts completely cleared. While you will certainly receive some relief, you will not receive the same fresh start that you would with a Chapter 7 filing. However, as the length of time that is reported on your credit report is shorter, it could allow you to start taking out loans sooner.
Reasons to Hire Legal Support
Filing for bankruptcy protection is one of the most significant financial and personal decisions that you can ever make. Due to this, it is always important that you have an attorney by your side when you do want to file. The experienced Jacksonville bankruptcy attorneys can offer several services that can help ensure you choose the right filing option and receive a good outcome. When working with the Adam Law Group, those that are in this area can receive a full consultation on their case and proper support with filing. They can then handle all deliberations with creditors and other parts of the process, so you can put the filing behind you and start to rebuild your financial life.