Bankruptcy is a legal tool that can help you get out of debt when you are in over your head. However, is it not something that should be taken lightly. Bankruptcy can have a serious impact on your credit for several years, and it can also have unintended consequences that you may not be aware of. Here are some concerns you may have about the bankruptcy process.
How Can You Tell Which Bankruptcy Option Is For You?
Individuals frequently use Chapter 7 or Chapter 13 bankruptcy, which leads people to wonder which one is best for them. Be aware that there is means testing to help tell you if you are eligible for Chapter 7 bankruptcy, which discharges your unsecured debts so that you do not have to pay them back. If you do not qualify for Chapter 7 based on your disposable income, then you have to use Chapter 13 and create a debt repayment plan.
When Should You Avoid Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is going to give you a fresh start because many of your debts will be discharged. However, it also involves liquidating assets to pay off as much of that debt as possible. This causes people to lose property that they do not want to lose. It may be best to avoid Chapter 7 if you will lose property that you want to keep, even though it may make getting back on your feet a bit harder with the repayment plan.
Does Each Form Of Bankruptcy Cover Different Debts?
The main difference that you'll find between Chapter 13 and Chapter 7 is how Chapter 13 handles missed payments for a home or car. If you are behind on those payments, they can be lumped in with the repayment plan in order for you to get caught up on them. You must keep making regular payments on your home to stay current, but the missed payments can be paid off over 5 years with your repayment plan.
Is It Possible To Change Bankruptcy Forms?
If you qualify for Chapter 7 bankruptcy, know that it is possible to convert between either Chapter 7 or Chapter 13 if you find that the one you choose first will not work for you. This is common in situations where people have their circumstances change. For example, if you lose your job and are not able to make payments towards the repayment plan, you may decide to convert to a Chapter 7 bankruptcy. The opposite can be true, where you find employment and now have more disposable income and can start paying back debts to reduce the impact on your credit history.
Contact a bankruptcy attorney to learn more.