Bankruptcy can help people struggling with financial debt get a clean slate and control their income and their future. Deciding on declaring bankruptcy is not the only choice an applicant will have to make; they will also need to choose which type of bankruptcy is right for them. So, what is the difference in the choices?
There are many reasons that someone would need to file for bankruptcy. 46% of bankruptcy applications are a result of medical debt. Both chapter 7 and 13 bankruptcy both handle this debt differently.
Chapter 7 bankruptcy
This form of bankruptcy discharges all unsecured debt. Unsecured debt is a form of debt like medical debt and credit card debt that does not have any collateral attached to them. To earn this discharge, the applicant must sell their non-essential assets (like second homes or cars) and use the profits to offset the debt. Chapter 7 bankruptcy will discharge the remaining debt.
Chapter 13 bankruptcy
This form of bankruptcy does not discharge debt. Instead, Chapter 13 bankruptcy restructures the payments of the debt, allowing the applicant to pay off their debt within 3-5 years. While the debtor will still need to pay their debt, this option allows the debtor to keep their assets while paying off their debt. This option can also help avoid foreclosure for debtors who are concerned about keeping their homes.
Which is right for you?
A bankruptcy attorney understands just what each option of bankruptcy offers and how they can benefit you in their own way. The outcome of each option will have a different impact on the debtor, so be sure that you are making the best choice.