Trying to figure a way out of debt and have peace of mind when it comes to your finances can be a very exhausting task to handle. Making the decision to file for bankruptcy can also be a difficult one to make, to help with that decision it is usually a good idea to compare the advantages and disadvantages of bankruptcy. Below we compare the two most common bankruptcies that people normally file, Chapter 7 and Chapter 13, and their pros and cons.
Chapter 7 Pros
• There is no limit to the amount of debt that can be discharged
• Any balances that may be left over after the nonexempt assets are liquidated are discharged and you no longer have to worry about them.
• Any income or assets you gain after the date on which you filed for bankruptcy belong to you, they are out of the reach of the creditors and the court.
• A Chapter 7 bankruptcy generally does not take long to complete, they are usually over between 3 to 6 months, which means that you are free from your debt much quicker.
• There is not a minimum amount of debt that is required before you are eligible to file.
Chapter 7 Cons
• Any property that is considered to be non-exempt, which is typically anything but your home and 1 car, are taken by the trustee and liquidated to pay your debts.
• There may be some debts that cannot be discharged, such as mortgage liens.
• If there is the threat of foreclosure on your house, the lender’s efforts can only be temporarily stalled by filing.
• If one of your debts required a co-signer, that person may receive the debt unless they also file for bankruptcy.
• Chapter 7 bankruptcy can only be filed once every 8 years.
• Bankruptcy can have a negative impact on your credit.
Chapter 13 Pros
• It is possible to keep all of your assets, non-exempt and exempt.
• The time-frame in which you have to repay your debts is extended.
• Any debts that are not discharged in during the Chapter 7 can be reduced by filing for a Chapter 13 bankruptcy.
• If your debt required a co-signer, that co-signer is not going to be held liable to collector’s attempts as long as the repayment plan is to be paid in full.
• The lender of your home loan cannot foreclose on your home.
• There is no limit on the amount of time you can file a Chapter 13 bankruptcy.
Chapter 13 Cons
• You have to pay your debts out of your own income, even the income that you get after the date of filing for bankruptcy.
• Some debts will still be left over after the bankruptcy, you will still be held liable for them.
• Filing for a Chapter 13 bankruptcy can be more costly due to it being a bit more complex.
• The repayment plan can go on for years, having an impact on your income.
• Your debt must be under $1,532,700 (e.g., unsecured debts are less than $383,175 and secured debts less than $1,149,525). These amounts are routinely adjusted every 3 years.