If you are one of the many people in the United States who is struggling to keep up with their debts, you may be considering filing for bankruptcy. Before doing so, you should understand the differences between Chapter 7 and Chapter 13 bankruptcy, and what other options you might have before declaring bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy generally works well for low-income individuals who have little or no assets. This type of bankruptcy completely gets rid of most unsecured debts such as medical bills and credit cards. Chapter 7 requires individuals to meet certain income requirements in order to qualify.
Once you file for a Chapter 7 bankruptcy, an ‘automatic stay’ prevents creditors from continuing to attempt to collect payments. During this time, a trustee will be appointed to your case in order to review your documents and paperwork, and to sell unprotected assets in order to pay back some of your debts.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is better suited for individuals who make enough money to pay back a portion of their debt every month.
A Chapter 13 bankruptcy allows you to keep all of your property provided you pay your creditor an amount equal to what they would have made from selling your nonexempt property. Additionally, you will have to continue paying back your debts through a repayment plan.
Alternatives to Bankruptcy
Before filing for bankruptcy, there are a few alternatives you should consider. First of all, you should attempt to renegotiate your debts with your creditor. Oftentimes, creditors will be willing to reduce the amount of debt that you owe if they know you are considering filing for bankruptcy. Additionally, you can work with an attorney to settle your debts. Debt settlement will allow you to negotiate a lump sum amount that you can pay to your creditor in order to completely get rid of your debt without having to pay all of it back. If you are struggling to figure out how to handle your outstanding debts, consider consulting with an experienced debt defense attorney to help you figure out what steps you can take to get out of debt without using bankruptcy. Bankruptcy can be an OK tool for you to use, but – in my experience – it should only be used as a last resort. If you are looking for a debt defense attorney in Miami, West Palm Beach, Tampa or Orlando, the Law Offices of Alexander Borell offers free consultations so that you can learn about what specific options you have aside from bankruptcy.