Filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy is a big step. It is not something you should do lightly before getting all the facts. Which form of personal bankruptcy is right for you? What is the process like, and what long-term effects should you expect?
Here are the answers to some of the most frequently asked questions our clients ask us:
What is the difference between Chapter 7 and Chapter 13 bankruptcy?
Basically, Chapter 7 bankruptcy is “liquidation” bankruptcy, and Chapter 13 is “reorganization” bankruptcy. In other words, Chapter 7 is a way to get rid of most of your debts while having to possibly lose some of your property, although your property may all be protected by various legal exemptions. In Chapter 13, your debt is reorganized into a repayment plan that lasts a fixed number of years, usually 3-5 years. To qualify for Chapter 7, you usually qualify under what is called a “means test” by having little or no ability to repay your debts on your own due to a lack of income and resources. A Chapter 13 is used in cases where you are trying to protect equity in property that is not covered by exemptions and when you have enough income to make the payments in a Chapter 13 plan. Chapter 7 is utilized more often than Chapter 13.
How can I keep my house and vehicle?
Generally, both forms of bankruptcy can let you keep your home (depending on the equity in the home) and at least one vehicle. In a Chapter 7, the law sets aside “exempt property,” which also can include your household furnishings, appliances and more. Meanwhile, Chapter 13 often lets you keep much more of your property. However, each case is specific to your circumstances. Most Chapter 7 are what is called “no-asset” bankruptcies in which all the assets are protected by exemptions.
Would filing for bankruptcy hurt my credit score?
Bankruptcy will reduce your credit score and will remain on your credit report for ten years. On the other hand, long-term, carrying more debt than you can afford could damage your credit score far more.
How do I find out more about bankruptcy?
The best way for you to learn your options for getting out of debt is to contact an attorney in your area who practices bankruptcy law. The lawyer will go over your choices with you and help you decide which option is right for you.