Filing for bankruptcy is the top choice for anyone deep in debt, but it can be the best solution for some. Depending on a person’s financial situation and previous history a bankruptcy can provide a better source of debt relief than other debt resolution methods. However, filing for Chapter 7 and Chapter 13 carries different risks and outcomes. Whenever possible, debtors are encouraged to seek Chapter 13 bankruptcy first.
Chapter 13 bankruptcy gives debtors a unique chance to resolve both unsecured and secured debts easily. By developing a repayment plan that can roll all debt payments into one monthly payments, most debtors find this consolidating effect to be easy to manage. Further, the Chapter 13 plan is based off of what the court determines to be a budget-friendly amount, leaving creditors without option to collect outside of the plan. Certain debts that cannot be eliminated in Chapter 7 cases, like student loans, taxes or domestic support payments, may be eligible to be repaid through a Chapter 13 plan.
Asset protection is one of the biggest concerns most people bring into a bankruptcy filing. Since secured debts are included in a Chapter 13 case, debtors do not have to worry about losing assets to creditors. Debtors are also free from the worry over the fate of their credit standing after a Chapter 13 case, as it is better preserved in this type of filing. When the debts are repaid, the accounts will reflect a “satisfied” status rather than an “eliminated” or “settled” status found in Chapter 7 cases. Future creditors are more likely to look favorably on a debtor exiting Chapter 13 than Chapter 7, which makes securing credit easier in most cases.