Many people suffer from overwhelming debt caused by unexpected medical bills, accidents, late fees, unemployment and rising interest rates. After accumulating debt that can’t be paid, people often search for quick and easy solutions to their troubles. As a result, many people file for bankruptcy. Bankruptcy is a process that allows people to wipe out large amounts of debt.
People have many options when seeking debt forgiveness. Two of the most common options are Chapter 7 and Chapter 13 bankruptcy. Here’s what you should understand about each:
Chapter 7 bankruptcy is the most common
People who can’t pay off their debts or struggle to combat late fees and interest often file for Chapter 7 bankruptcy. Most debts can be discharged under Chapter 7 bankruptcy within a few months.
Chapter 7 bankruptcy is also called “liquidation bankruptcy” because debtors may have to liquidate some of their excess assets to satisfy creditors. Assets are either considered exempt ( home, the family car, clothing, etc.) or non-exempt (art collections, sports cars, vacation homes, etc.). However, many people don’t ever face the issue of liquidation because most people who qualify for Chapter 7 don’t have those kinds of spare assets in the first place.
Chapter 13 bankruptcy can help preserve assets
Chapter 13 bankruptcy is an option for people who have a flexible income but are still struggling to clear their debt obligations. Debtors approved for Chapter 13 bankruptcy can have their debts reorganized. Debtors are then required to pay back a portion of their debt obligations within three to five years, after which the remainder of unsecured debts will be discharged.
Which bankruptcy should you file for? It’s not easy to know which form of bankruptcy will work best for you. You should reach out for legal help to learn about your options.