Choosing Between Chapter 7 And Chapter 13 Bankruptcies

Many people are carrying debt. Outstanding credit card bill, car loan and mortgage could be quite difficult to handle. For some people, debt is essential to cover their basic necessities and this is not a good situation. When we use debt to pay for food and utility bills, we could reach a financial meltdown; if we are unable to pay. Large accumulation of debt can be caused by financial mismanagement. It could also be unfortunate situations in life, such as accident, unemployment, medical issues and divorce. When things are bad enough, we may no longer be able to deal with he minimum payments. We should stop the ever-growing pile of debts, as well as the incessant calls from our creditors. This situation may put everyone over the edge. Eventually, our only solution is to declare bankruptcy. Before declaring bankruptcy, we should do our homework. It’s important to make an appointment with trusted credit counselor, so we will be able to find a solution. After checking our situation, counselor may find that we could actually survive financially only through better budgeting or with credit consolidation. If we need better budgeting, we may consider filing Chapter 13. In this case, we will be given a strict budget that we must follow. We will need to sign and pledge our willingness to follow. Again, we may need professional helps to allow us adopt the budget and save enough money.

Chapter 7 is actually a “better” solution , because it wipes away all unsecured debts. In this case, debtors are able to obtain true fresh starts. Creditors are paid off by selling non-exempt assets that are designated by the bankruptcy trustee. However, Chapter 7 is for those who have catastrophic financial condition and they are already beyond help, except with Chapter 7 bankruptcy. We should know whether new laws have been passed to favor creditors. If this is the case, them it would be much more difficult for us to become eligible for Chapter 7 bankruptcy. In this case, if we don’t qualify for Chapter 7, then we should file under Chapter 13. If we are accepted for Chapter 13 bankruptcy, then we should work well with a trustee. In this case, the trustee should be able to create a sensible budget that we can follow.  If we follow the framework of the plan properly, we should be able to gradually pay back the debt. In general, Chapter 13 is acceptable for us if we are able to repay the debt within 5 years. At the end of this period, our debt will be completely eliminated. An important tips for survival is that we should do anything legal and acceptable to stay on top of our bankruptcy. Before declaring bankruptcy, we should be able to show and prove that we have done everything we can, even if it’s only paying off one credit card.

Bankruptcy attorney should provide valuable advice and  he should be able to prevent costly mistakes. Any financial mistake may result in huge fines that are bad for our situations.

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