The decision to file bankruptcy is a big one, but it isn't going to be the last decision you have to make about the situation. Once you know that you need to do something about your finances and determine that bankruptcy is the answer, you will have to decide what type of bankruptcy to seek.
The type of bankruptcy you file has several impacts on what will happen from there. Typically, the two options that you will have as a consumer are Chapter 7 or Chapter 13. Here are some of the notable differences between the two:
Ability to file
The ability to file Chapter 7 bankruptcy is based on a means test. You have to show that you can't afford to pay your debts. This form of bankruptcy is known as liquidation bankruptcy, so your assets are liquidated, your creditors are paid, and the remainder of the balances are dismissed.
You have to show that you are able to repay the debts that you have if you plan on seeking a Chapter 13 bankruptcy. This is commonly referred to as the working man's bankruptcy because you would have to repay a portion of your debts based on your income.
When you file a Chapter 7 bankruptcy, you will likely have to part with most of your assets. You do have the option of purchasing your home or vehicle at wholesale cost, but you will have to bid adieu to most of your other assets.
A Chapter 13 bankruptcy enables you to keep some of your assets. You will have to work out a payment arrangement on the assets that you have a balance on, such as the home mortgage. The arrangement that you work out has to meet the requirements of the court, so be sure that you can do this.
Around 71 percent of consumer bankruptcies are Chapter 7 and the remaining 29 percent are Chapter 13. The individuals who file for Chapter 7 bankruptcy can't file for Chapter 7 bankruptcy again. People can refile for bankruptcy as a Chapter 13, even if they have a previous bankruptcy.
No matter what your situation, you will need to take action if you are swimming in debt. Finding out the exact ways that each chapter will impact you, as well as which you qualify for, can help you to make an informed decision that you feel comfortable with.