The realization that you have financial difficulties is one that’s hard to deal with because it’s not like you can just stop paying all your bills and still live a normal life. Many people assume that being irresponsible with money is the cause of financial difficulties, but that’s often not the case. People can experience these for a variety of reasons, including unexpected medical conditions or reductions in income.
If you’re dealing with more expenses than income each month, you may be ready to take action to reclaim control of your finances. One option for this is filing bankruptcy. Most consumers will file either Chapter 7 or Chapter 13, so understanding the differences may be beneficial.
Chapter 7 versus Chapter 13
A Chapter 7 bankruptcy is known as a liquidation bankruptcy. In order to file this type of bankruptcy, you must pass a means test. You don’t have to make payments to the bankruptcy court; however, the trustee has the option of liquidating non-exempt assets to pay off debts.
A Chapter 13 bankruptcy is known as a wage earner’s bankruptcy. You will have to make specific payments on a set schedule to the trustee. The funds are then passed out to creditors to pay off the debts.
Once the bankruptcy is done, the creditors included in the filing will have to absorb any balance remaining. You’ll then be able to start obtaining new lines of credit to start rebuilding your credit history.
Filing for bankruptcy requires that you meet certain requirements, including credit counseling and debtor education. Understanding your responsibilities and rights throughout the process is critical. It may be beneficial to work with someone familiar with these matters so they can assist you as you take control of your finances.
