Chapter 7 and 13 are two distinct legal options that help borrowers tackle their debt. Both chapters have their own potential risks, benefits, and consequences.
Filing a Chapter 7
You may also know it as liquidation; it is an option to consider if you have minimal or no disposable income, which you may have to prove. Note the following when deciding if chapter 7 is the right option for you.
· Reduction of monthly debt-repayment load
A discharge of debt through chapter 7 allows no legal obligation to pay back the debt. There are a few exceptions with discharging debts in chapter 7. Consult your bankruptcy lawyer before you file.
· Debt collector relief
Chapter 7 can prevent debt collectors from taking legal action against you. They may be held back from contacting or collecting money from you or filing lawsuits against you.
· Clear debts faster (than Chapter 13)
Chapter 7 ideally takes 90-100 days to complete, from start to finish. Plus, the credit counseling course completion time before you file for chapter 7.
· Loss of assets
You are at the potential risk of losing your assets. As per your state laws, if you have equity in particular assets, personal assets such as your cash may be at stake.
· Impact on credit
You may face severe consequences on your credit. Filing for a chapter 7 bankruptcy could make it appear on your credit report for possibly 10 years, from the filing date onwards.
Filing a Chapter 13
If you have a property you wish to continue to have in your possession; Chapter 13 is an option to consider. Here are some things to look at.
· Sufficient income
Chapter 13 might be the right option for you if you have sufficient income sources, unlike chapter 7, requiring little to no disposable income.
· Prevent foreclosure process and debt collection
Stop the foreclosure process and have a chance at catching up with your due mortgage payments. This makes it a great option for struggling homeowners.
· Debt repayment assistance
Convenient repayment plans provide you with assistance to easily repay all or some of your debts cost-effectively. With certain reductions and relaxations, you can repay debts in three to five-year plans.
· Long-term debt discharge
Unlike chapter 7, your debt responsibility does not end until the completion of your entire repayment plan. Generally ranging from three to five years.
· Budget strain
Pledging for your disposable income during the plan can be strenuous. It makes it even more difficult with variable income.
· Alterations to repayment plans have consequences
In the event of not being able to stick or make payments as per the original repayment plan, your case of bankruptcy will dismiss or convert to chapter 7. This puts you at risk of losing your assets.
· Mild credit impact
Creditors perceive a Chapter 13 bankruptcy as more favorable than chapter 7 as it depicts you paid more debt. Chapter 13 bankruptcy can stay on your credit reports for seven years from the filing date onwards.
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