Anyone looking to file for bankruptcy understands that there are two types of personal bankruptcy available. However, most people may not know the differences between them or which one will better serve their financial situation.
The most commonly sought form of bankruptcy is Chapter 7. This is because most people experiencing financial hardship desire to have their debts eliminated and may assume they cannot afford to repay their debts. Filing for Chapter 7 bankruptcy can resolve debts much faster than in a Chapter 13 bankruptcy, but there are some additional considerations that may not bode well for choosing Chapter 7.
- First, not everyone will qualify for Chapter 7. In order to be eligible for Chapter 7, the debtors income must be less than the median income level of the state, or whose debt burden is too large to be supported by their income levels.
- Also, Chapter 7 cannot help alleviate all debts without putting some assets at risk. For example, mortgage or car loan debts are not well served in Chapter 7 as these assets can be repossessed unless the debts are repaid.
- Last, obtaining credit after a Chapter 7 case can be more challenging than after a Chapter 13 discharge. This is due to the fact that future creditors look more favorably on debt repayment, even in a Chapter 13 case, than they would a debt elimination.