A person seeking debt relief through bankruptcy may qualify for one of two types of bankruptcy. Debt elimination is available through Chapter 7 bankruptcy or debt repayment is available through Chapter 13. Each type of bankruptcy offers different advantages, but also comes with different risks. The most sought after form of bankruptcy is Chapter 7, in which a person can receive a complete elimination of their debts. It is important to understand the following information in before filing the petition for Chapter 7.
Your Debts
Chapter 7 bankruptcy can eliminate most of your unsecured debts. These are debts that are not secured against collateral like a mortgage or car. The most common unsecured debts are credit cards, utility bills and medical bills. When you file for Chapter 7, these debts may be eliminated through (a) a write off on the part of the creditor or (b) some measure of liquidating your assets. If the court approves asset liquidation, you may face losing some of your assets to creditors in attempt to satisfy the debts.
Your Assets
In general, your assets are at greater risk for liquidation in Chapter 7 than in a Chapter 13. The reason is because in Chapter 13 you are working towards repaying your debts and would be granted ownership rights to the asset once the debt is satisfied. Bankruptcy exemption laws allow for some of your assets to be protected during either type of bankruptcy. However, each state offers variations on the amount and type of asset protected. Before you file for bankruptcy, it is a good idea to find out your state exemption laws to see if your assets are at risk in Chapter 7.
Your Credit
It is true that a bankruptcy is listed on your credit report for up to 7 years, but that doesn't mean it damages your credit. In fact, the majority of damage done to your credit happens before you even consider filing for bankruptcy. Your credit gets damaged when your accounts become delinquent and the longer the debts go unpaid the worse the damage to your credit. Many people find that their credit improves after filing due to the removal of the delinquency status. In many cases, people are able to begin to repair their credit much faster than prior to filing.
In general, your credit will be better off following a Chapter 13 case than a Chapter 7 case. The reason for this is because the repayment of the debt through a Chapter 13 plan allows creditors to mark your account as €paid€ rather than €satisfied€. Repaying your debts is always the better strategy if you can afford to do so.
Your Debts
Chapter 7 bankruptcy can eliminate most of your unsecured debts. These are debts that are not secured against collateral like a mortgage or car. The most common unsecured debts are credit cards, utility bills and medical bills. When you file for Chapter 7, these debts may be eliminated through (a) a write off on the part of the creditor or (b) some measure of liquidating your assets. If the court approves asset liquidation, you may face losing some of your assets to creditors in attempt to satisfy the debts.
Your Assets
In general, your assets are at greater risk for liquidation in Chapter 7 than in a Chapter 13. The reason is because in Chapter 13 you are working towards repaying your debts and would be granted ownership rights to the asset once the debt is satisfied. Bankruptcy exemption laws allow for some of your assets to be protected during either type of bankruptcy. However, each state offers variations on the amount and type of asset protected. Before you file for bankruptcy, it is a good idea to find out your state exemption laws to see if your assets are at risk in Chapter 7.
Your Credit
It is true that a bankruptcy is listed on your credit report for up to 7 years, but that doesn't mean it damages your credit. In fact, the majority of damage done to your credit happens before you even consider filing for bankruptcy. Your credit gets damaged when your accounts become delinquent and the longer the debts go unpaid the worse the damage to your credit. Many people find that their credit improves after filing due to the removal of the delinquency status. In many cases, people are able to begin to repair their credit much faster than prior to filing.
In general, your credit will be better off following a Chapter 13 case than a Chapter 7 case. The reason for this is because the repayment of the debt through a Chapter 13 plan allows creditors to mark your account as €paid€ rather than €satisfied€. Repaying your debts is always the better strategy if you can afford to do so.