When you’re considering bankruptcy, it’s essential to know which type suits your financial situation. Personal bankruptcy is typically divided into two main types. Each offers a different approach to managing your debt, and understanding the differences can help you make an informed decision.
Chapter 7 bankruptcy
Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy.” This process involves selling some of your assets to pay off your debts. However, certain exemptions allow you to keep essential items, such as your home or car, depending on your state’s laws. Chapter 7 is typically suited for individuals with little to no disposable income and those who want a relatively quick discharge of debt. The process usually takes about 3 to 6 months, and after it’s completed, most of your unsecured debts, such as credit card balances and medical bills, are wiped out.
Chapter 13 bankruptcy
Chapter 13 is known as “reorganization bankruptcy” because it involves reorganizing your debts into a manageable repayment plan. Instead of liquidating assets, you will pay off your debts over a period of 3 to 5 years. This type of bankruptcy is typically for individuals who have a steady income but need help restructuring their payments. Chapter 13 allows you to keep your property, including non-exempt assets, as long as you adhere to the repayment plan.
Which type is right for you?
Choosing between Chapter 7 and Chapter 13 depends on your financial situation. If you have few assets and a low income, Chapter 7 might be the most suitable. However, if you have significant assets you’d like to keep or a reliable income but can’t pay off your debts, Chapter 13 may be the better option.
Understanding the differences between these two types of personal bankruptcy will help you make the best decision for your financial future.
