Deciding Whether to File Chapter 7 or Chapter 13 Bankruptcy: What’s the Difference?
If there’s one thing that none of us ever plan to do, it’s filing bankruptcy. Yet sometimes we lose our jobs and/or our bills become overwhelming and after a lot of contemplation, we realize that it really is the best thing to for us.
If you’re currently thinking about filing for bankruptcy and you’d like to know if it would prove to be best to file for Chapter 7 or Chapter 13, we have provided you with some of the pros and cons of both of them below:
The Pros and Cons of Filing Chapter 7
If your goal is to remove all of your outstanding debt, then Chapter 7 is going to be the direction that you should take. Once you file for it and the courts approve, it should only take you a few months to have all of your unsecured debt removed. Do keep in mind that this does not get rid of debts like defaulted student loans and back taxes that you might owe. Also, there are a few disadvantages that you should keep in mind. For one thing, filing for Chapter 7 means that you could possibly lose some of your property including your home and in some cases, even your vehicle. However, there is a possibility that you can keep your house through a program that is known as homestead exemption. Just make sure to keep in mind that there are some really strict stipulations that come with it; including the fact that you have to remain extremely consistent with your mortgage payments and not have any substantial non-exempt equity. Another thing to remember is that your bankruptcy status remains on your credit report for several years and you can only file for Chapter 7 once every eight years.
The Pros and Cons of Filing Chapter 13
When celebrities file for bankruptcy, it tends to be Chapter 11 or Chapter 13 more than just about anything else. It’s pretty understandable why. When it comes to Chapter 13, it gives you the ability to keep all of your property. When you are approved for this kind of bankruptcy, you are protected from having your property liquidated in order to pay off the debts that you owe. Instead, you can set up a payment plan so that you can pay your creditors over a certain period of time. As an added bonus, if you had cosigners attached to any of your debts, they will not be subjected to any bankruptcy proceedings. One thing that you should keep in mind as it relates to your property is that there is one stipulation: you must honor your payment plan until your debt is fully paid off. As far as the main disadvantage of this option, unlike Chapter 7, you are not able to completely eliminate your debt when you file for Chapter 13 although you typically get 3-5 years to reconcile your debt.
As you can see, there are pros and cons to filing for Chapter 7 as well as Chapter 13. So, before you make a final decision, we recommend that you consult with a law firm like The Ballard Law Group. They can advise you on what will prove to be the most beneficial for you and your financial state. After all, if you’re going to file for bankruptcy, it needs to (ultimately) make matters better, not worse, for you and your situation.