Like many Indiana residents, you may have decided that bankruptcy is the right choice for you. Bankruptcy can help you get rid of unmanageable debt and start over financially.
When you have decided to file, the next step is determining which type of bankruptcy is best for your situation. There are several different chapters of bankruptcy, but Chapter 7 and Chapter 13 are some common types filed by consumers.
A Chapter 7 bankruptcy discharges all your qualifying debts. Not all debts qualify for bankruptcy, such as student loan debt, past due child support and tax debt.
Pros and cons of Chapter 7
An advantage of a Chapter 7 bankruptcy is that once your qualifying debts are discharged, they are gone for good. The Chapter 7 bankruptcy process is also generally faster than a Chapter 13, with most Chapter 7 bankruptcies being completed in three to four months. A Chapter 13 bankruptcy usually takes three to five years to complete.
Additionally, the discharge of your debts stops creditors from harassing you and taking action to collect the debts.
A major disadvantage to Chapter 7 bankruptcy is that you might not be able to keep certain assets, such as your home. Many people avoid filing for bankruptcy out of fear of losing your home, so if keeping your home is your goal, Chapter 13 might be a better option.
Rather than discharging your qualifying debts, a Chapter 13 bankruptcy consolidates them into one and you pay them off over three to five years.
Pros and cons of Chapter 13
A major benefit of a Chapter 13 bankruptcy is that it allows you to keep assets such as your home, since your monthly payments are distributed among your creditors, including your mortgage company. A Chapter 13 bankruptcy can sometimes help you keep your home even if it is already in foreclosure.
However, since a Chapter 13 bankruptcy requires sticking to a monthly payment plan for years, you should make sure this is something you can handle.
If you miss payments under your Chapter 13, you could modify your bankruptcy to a Chapter 7, which could put you in danger of losing assets. Missing Chapter 13 payments could also cause your bankruptcy to be dismissed altogether.
Both a Chapter 7 and Chapter 13 bankruptcy are likely going to have a negative effect on your credit score, but creditors sometimes look more favorably on Chapter 13 since it shows that you have income and can make consistent monthly payments.
Before you decide which type of bankruptcy to file, make sure you qualify. For example, you must typically have an income to qualify for a Chapter 13 bankruptcy to show you have a way to make your monthly payments.
Once you know what types of bankruptcy you qualify for, thoroughly review your financial situation and explore your options. Filing for bankruptcy is often one of the best decisions people make to rid them of their crushing debt.