At Kingcade Garcia McMaken in Florida, we understand that bankruptcy can seem like a confusing undertaking for you. You have at least two types of bankruptcy from which to choose – Chapter 7 and Chapter 13 – and each has its own advantages and disadvantages.
As FindLaw explains, Chapter 7 is the simplest and quickest type of bankruptcy and accounts for almost 71 percent of the bankruptcies filed. Nevertheless, it may or may not be your best choice depending on your circumstances and what you wish to accomplish by filing bankruptcy.
Chapter 7 advantages and disadvantages
Perhaps Chapter 7’s biggest advantage is that it discharges virtually all of your consumer debt, including your credit card debt. In addition, it stops your creditors from attempting to collect their debts during your bankruptcy period. Furthermore, many of your assets are exempt and you will not lose them through bankruptcy.
On the negative side, you must meet certain income standards before you can file for Chapter 7. Also, while Chapter 7 can forestall foreclosure of your home, it seldom can prevent it.
Chapter 13 advantages and disadvantages
If you are a homeowner, perhaps Chapter 13’s biggest advantage is that it is a reorganization proceeding rather than a discharge proceeding. Thus you have a much better chance of saving your home. In Chapter 13, you devise a plan, which must be court-approved, whereby you pay off or substantially reduce your debts over a three- or five-year period. In addition, you have the opportunity to renegotiate the amounts and/or terms of many of your debts, including your mortgage. As long as you meet your payment plan obligations, your creditors cannot harass you.
On the negative side, you must use “disposable” income to pay your debts, meaning whatever extra you have left over after paying for necessities such as food, medical care, etc. Given Chapter 13’s extended period of time, this means that you will be on a very strict budget for a relatively long period of time.
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