Bankruptcy may be the perfect path for many Americans to free themselves of massive financial debt and start fresh in life. While bankruptcy may be the right choice for many, the type of bankruptcy a person chooses will define how they recover from debt. When a single decision has so much impact, how can someone know what is right for them?
Regular citizens often only have a choice between Chapter 7 and Chapter 13 bankruptcy. 68% of Americans filing for bankruptcy will choose to file under Chapter 7. What is it about these options that lead to most applicants selecting one over the other?
Chapter 7 bankruptcy
What is likely the main appeal of this option is that it eliminates the majority of an applicant's debt. This clean slate does come at a cost, however. To complete this option, an applicant must sell off any nonessential possession. The assets include second homes or cars, valuable jewelry or artwork, and collectibles. A Chapter 7 applicant will be able to keep their primary residence and their primary vehicle to maintain their livelihood. Once the funds from these assets applies to the debt, the government clears most categories of remaining debt.
Chapter 13 bankruptcy
This choice differs from Chapter 7 in that the applicant does not need to sell any assets to earn this benefit. Instead of eliminating most debt, this option allows the government to restructure the payments of all the debt into a three or five-year payment plan. This option is a healthy choice for this with a reliable income to maintain these payments. When paying off the debt could typically take a decade or more, Chapter 13 allows an applicant to take back control in as little as three years.
So what is the right choice?
It may be possible for someone considering bankruptcy to prefer one option over the other, only to learn that the other choice is better for them. A bankruptcy attorney is an excellent way to evaluate the options and pursue the selection.