A new year has dawned, but you’re still in the same old predicament: You don’t have enough money to pay your bills in Maryland. If the time has come to file for bankruptcy, do you choose Chapter 7 or Chapter 13?
Bankruptcy is a last resort
Individuals should not file bankruptcy unless they have exhausted all other means to get their debts under control. Chapter 7 and Chapter 13 refer to the sections under U.S. bankruptcy law that determine how your debt is resolved. The amount of collateral and property you own will generally determine which one you choose.
Most individuals filing Chapter 7 don’t have a home and have limited earning capacity. This bankruptcy form involves liquidating most or all your assets to satisfy your debt. You must pass a means test to qualify for Chapter 7, basically meaning that your disposable income is low. You’re usually discharged from Chapter 7 within three to six months.
Chapter 13, on the other hand, takes three to five years to complete. Under this form of bankruptcy, you can keep your property but must pay unsecured creditors an amount equal to the value of non-exempt assets via structured monthly payments. Chapter 13 is only for individuals whereas businesses can also file for Chapter 7.
Which bankruptcy filing is best for you?
Both types of bankruptcy filings have advantages and disadvantages. Carefully assess your situation before your bankruptcy filing. Individuals with considerable medical and credit card debt may want to consider Chapter 7.
Depending on your situation, you may have some of your debt forgiven. However, you must be aware that your credit will not be good for some time after the filing. Bankruptcy will stay on your credit report for either seven or 10 years after your filing depending on which type you choose.