Financial struggles can affect nearly anyone. This fact is clear from the hundreds of thousands of people who file for bankruptcy each year.
However, bankruptcy is not necessarily an easy way out of debt and liabilities. Filers will face various consequences of the decision and need to be sure the choice is right for them.
When Chapter 7 may be the right choice
Chapter 7 involves a liquidation of all assets except for certain exempt properties. Creditors receive a portion of the funds and can no longer pursue the debtor.
This option is suitable for a person who cannot realistically repay all debts. Chapter 7 may also be ideal if a debt settlement process will require many years to fulfill. Most filers can complete a Chapter 7 bankruptcy in six months or less.
A person who files for Chapter 7 will not have to worry about garnished wages and may avert a home foreclosure, vehicle repossession or utilities disconnection. Also, this option may open a way to restore credit faster for people with very poor scores.
When Chapter 13 fits
Chapter 13 involves reorganization, where debtors can keep their property. A person can pay debts over three to five years and may not have to repay some loans in full.
Also, Chapter 13 drops off a credit report sooner than a Chapter 7 filing does. The process provides tax-free debt forgiveness and an end to accruing interest and fees. While a person can only file for Chapter 7 every eight years, Chapter 13 does not have a limit.
Bankruptcy can be a suitable option for debt relief. However, whether a person takes that step and which type of filing one uses depends on the exact circumstances.