Many people realize they may need to file bankruptcy, but some do not understand that there are multiple types of bankruptcy. The most common consumer bankruptcies are Chapter 7 and Chapter 13 bankruptcy.
The purpose of this article is to explain the types of bankruptcy to help you make the most informed decision while providing alternatives.
If you read this article to the end, you’re undoubtedly poised to learn the following:
- How Bankruptcy Works
- Types of Bankruptcy
- Chapter 7 Bankruptcy vs Chapter 13 Bankruptcy
- Cost to File Bankruptcy.
- Bankruptcy Alternatives
How Bankruptcy Works
Basically, bankruptcy is a legal creation for helping those that are neck-deep in depth. This type of debt forgiveness vehicle often results in an outright cancelation of debt owed. Debts that can be canceled via bankruptcy include personal loans, credit cards, medical bills, payday loans, etc. these are basically loans that are not secured by assets.
Your expenses and income are first examined to ascertain your capacity to pay back your debt in a payment plan if you’re applying for a Chapter 13 bankruptcy discharge.
Chapter 7 Bankruptcy vs Chapter 13 Bankruptcy
Here are the most common types of bankruptcy
- Chapter 7 Bankruptcy
- Chapter 11 Bankruptcy
- Chapter 12 Bankruptcy
- Chapter 13 Bankruptcy
Other less common types of bankruptcy are Chapter 9 and Chapter 15 bankruptcy. The Chapter 12 bankruptcy is one that covers fishing debt and farm debt. For this article, we’ll focus on the most prominent types of bankruptcy which are Chapter 7 and Chapter 13 bankruptcy as they’re the most common consumer bankruptcy and it’s imperative to understand the difference here.
The Differences Between Chapter 7 and Chapter 13
Ideally, an average person will file for either Chapter 7 or Chapter 13 bankruptcy. These two bankruptcy types are the most prominent types of bankruptcy in the U.S. Want to know more about these bankruptcy types? Let’s highlight some characteristics about them:
Features of Chapter 7 Bankruptcy
- Getting a Bankruptcy discharge on this type of bankruptcy is super-fast as a discharge certificate can be issued in as little as 90 days after filing a petition.
- You often have to qualify for Chapter 7
- The bankruptcy discharge is not expensive
- There’s a possibility that a debtor may lose his/her assets except those assets are exempted by law. Thus debtors need to worry about the possibility of keeping their house, cars, RVs, etc. when applying for this type of bankruptcy discharge.
- It’s imperative that debtors must first qualify for bankruptcy based on their household size, state, and income level.
- Details of the discharge will remain on your credit report for 10 years after filing for a discharge
Features of Chapter 13 Bankruptcy
- The time frame for getting a Chapter 13 bankruptcy discharge is much longer
- It can be expensive. Some people question whether it’s worth it.
- Debtors are allowed to keep their assets. For example, you may be able to protect your home through a bankruptcy homestead exemption.
- Monthly payment is required
- Debtors are not subjected to any qualification criteria
- The details of the bankruptcy will remain on your credit report for a cumulative period of 7 years.
A significant majority of people have to first estimate whether they qualify for a bankruptcy discharge before applying. After that, they can then take the required online course, provide required documents, and attend a series of meetings.
What’s the cost of filing for bankruptcy?
There are costs to file bankruptcy. You may find it challenging to make the requisite bankruptcy payment. This is not a surprise since you’re already behind in other bill payments. There are affordable bankruptcy lawyers that provide a cheaper way to file for bankruptcy. However, bankruptcy attorneys acknowledge the category of people they’re dealing with. As such, they have payment plans that can help their customers to meet up with their bankruptcy payments.
Most of the money needed to pay for bankruptcy will be the filing fee and the attorney fee. The filing fee, it’ll cost between $300 and $400. The attorney fee on the other hand varies according to numerous factors.
Alternative to filing for bankruptcy
Thinking of not filing a bankruptcy discharge? There are numerous alternatives to filing for a bankruptcy discharge. In this section, we will talk about the options you can choose from. However, before we talk about the alternatives, let’s dwell a bit on a free tool that can help you consider whether you should file for a bankruptcy discharge or not. This tool is called Ascend’s free bankruptcy decisioning portal. On the portal is a calculator that considers numerous factors in considering whether bankruptcy is a good option for you or not.
Let’s help you with a description of the alternatives;
Renegotiate your loan terms with creditors
If you’re as financially literate as I am, you’re going to prefer an alternative that doesn’t hurt your credit score. If so, then you should seriously consider this option. Although most creditors don’t want to renegotiate, some still do.
If you succeed in renegotiating your loan terms, you should be able to articulate how much you’re saving from your loan payment.
Debt payoff planning
Your debt payoff planning should be done in conjunction with your budgeting strategy. Basically, debt payoff is the lining of your debts as stipulated by debt snowball, savvy, or the avalanche debt payment method. By coordinating these efforts in your budget, you’ll easily be debt-free in no time. You can make use of Google’s budget template; there are many free ones on the internet.
These are companies that have access to creditors, and help debtors negotiate a reduction in their credit rate. This bankruptcy alternative only works for high-interest-rate loans.
These are companies that help debtor reduce their total debt sum payable to creditors. This generally helps to save more money than the debt management option. You should definitely consider the difference between debt settlement and debt management to make the most informed decision.