When it comes to consumer debt relief, Americans considering a bankruptcy have two primary options — Chapter 7 or Chapter 13 bankruptcies. Although they both ultimately help a person discharge debt, they use very different methods.
Chapter 7 allows a debtor to forfeit his or her property in return for debt discharge. Fortunately, the law allows for a number of exceptions to what one must forfeit under Chapter 7, but it still ultimately strips a person of many of one's belongings and investments.
Contrastingly, Chapter 13 allows a debtor to create a repayment plan that he or she can use to repay all or some debt, on a schedule that a court approves. While a person who uses Chapter 13 must have a reasonably consistent income to justify the repayment plan, it also allows those who use it to keep most or all of their personal property.
Chapter 13 gives you room to breathe
Unlike Chapter 7, achieving a complete bankruptcy under Chapter 13 takes a significant amount of time — but that time is usually much more peaceful than the events that lead a person to consider bankruptcy in the first place.
A typical repayment schedule approved by a court lasts somewhere between three and five years, but once the debtor files it with the court, all collection actions cease immediately.
As long as the individual who files for Chapter abides by the repayment plan for the duration of the schedule, he or she is generally able to keep most or even all personal property and quietly repay debts under the protection of the law.
Many people choose Chapter 13 because it allows for several types of debt discharge that Chapter 7 does not. Under Chapter 13, a person can discharge debts he or she accumulated to pay for non dischargeable tax debt. A person can also use Chapter 13 to discharge debt resulting from a divorce property settlement or from willfully damaging property.
If, during the course of a repayment plan, a debtor falls on hard times and cannot keep up with the repayment schedule, it is often possible to qualify for a hardship discharge of debt. While this discharge is more limited, it can still offer significant relief and help a person get back on one's feet.
Your financial freedom is in your hands
Choosing to pursue any bankruptcy is a big step for a person, and choosing a Chapter 13 discharge is a long-term commitment with many opportunities for things to run awry. If you believe that a Chapter 13 bankruptcy may be the answer for your financial needs, be sure to consult with an experienced attorney who can help guide you.
Proper legal guidance helps to ensure that you can make the most of a bankruptcy procedure, while keeping your own rights and priorities in line and avoiding problems along the way to your financial freedom.