You have realized that you do not have the money to make another mortgage or credit card payment. You may lose your cars because you are close to defaulting on auto loans.
It is time to bite the bullet and file for bankruptcy. You know that as an individual you can file for Chapter 7 or Chapter 13, but how do you know which to pick? How do you decide which will allow you to continue to provide for your family?
Types of bankruptcies
Chapter 7 and Chapter 13 are the most common types of bankruptcy used by individuals, businesses and sole proprietors.
Chapter 7 bankruptcy involves liquidation. The bankruptcy trustee collects and sells all nonexempt assets. The trustee then uses the proceeds to pay the creditors. Both individuals and businesses may use this type depending on the results of the Chapter 7 means test. Other eligibility rules apply.
Liquidation of all assets may contribute to the individual debtor getting a fresh start. However, Chapter 7 does not discharge all types of debts. Some of these debts include:
- Tax liens
- Student loans
- Debts obtained through fraud
Chapter 7 will not allow an individual to get rid of a lien, so a creditor will still have the option to take the property attached to the lien.
Chapter 13 bankruptcy involves reorganization and gives an individual more advantages than Chapter 7. It provides the ability to save a home from foreclosure by stopping proceedings and continuing to make mortgage payments.
To be eligible, a person cannot have more than $394,725 of unsecured debt or $1,184,200 of secured debt. As with Chapter 7, Chapter 13 bankruptcy law has other eligibility rules that apply.
In most cases, those who file under Chapter 7 will obtain a discharge in three to five months. For Chapter 13, the discharge does not come about until all payments are complete. This may take between three to five years.