The decision to declare bankruptcy is one that you should never take lightly. Before making this decision, it is important to understand the right type of bankruptcy for you.
Most people file either Chapter 7 or Chapter 13 bankruptcy. Each type of bankruptcy serves specific purposes besides offering its unique benefits and drawbacks. Here are three factors you need to consider when choosing the right type of bankruptcy for your situation:
The value of your current assets
If you have high-value assets, you are better off opting for Chapter 13 rather than Chapter 7 bankruptcy where you risk losing property through liquidation. On the other hand, if you do not own much, you may consider filing Chapter 7 so you can obtain a debt discharge without losing property.
The nature of your debt
You can only discharge unsecured debts like personal loans or medical bills through bankruptcy. Secured debts, like your mortgage and car note, cannot be cleared through Chapter 7, and you could be leaving yourself open to foreclosure or repossession if you’re unable to catch up with your payments.
Chapter 13 bankruptcy, on the other hand, can be great if you can afford your mortgage and car payment with a little restructuring. It can allow you to gradually get back in step with your payments over time.
You have to meet certain income requirements to qualify for a Chapter 7 bankruptcy. If you do not, Chapter 13 is the way to go.
Bankruptcy can be a welcome relief if you are drowning in debt. However, to benefit from this process, you need to start by identifying the right type of bankruptcy for your specific situation.