People who are in debt and unable to make their payments may start to look at what bills they can avoid paying. Once their financial situation hits that point, it might be time for them to consider other options. Some may opt to consider bankruptcy.
Consumers will typically file either a Chapter 7 or a Chapter 13 bankruptcy. Both of these provide a legal way for the filer to get back on the right financial track, but they’re handled a bit differently.
Chapter 7 bankruptcy
A Chapter 7 bankruptcy is known as a liquidation bankruptcy. The filer doesn’t make any payments on the debts, but the bankruptcy trustee has the option of liquidating non-exempt assets to pay debts. Because the means test is so strict, it’s not incredibly likely that a person who’s filing this type of bankruptcy will have enough assets to pay off enough of the debts to make the liquidation worth it to the bankruptcy trustee.
Chapter 13 bankruptcy
A Chapter 13 bankruptcy is known as a wage earners bankruptcy. Once the case is filed, the individual will be put on a payment plan with an end date. As long as they make all these payments, the remaining balance is discharged once the final payment is made.
Filing for bankruptcy comes with specific rights and responsibilities. One of the rights includes the automatic stay prohibiting debt collection efforts. The responsibilities include having to go through credit counseling and taking a debtor education class. Working with someone who’s familiar with these cases is beneficial for filers so they know exactly what they should do and what to expect.
