A study by the credit bureau Experian found that about 340 million Americans are dealing with some kind of debt. This number is especially interesting considering that the population of the United States is about 340 million. In other words, just about everyone in the nation is carrying some kind of debt. It’s just a way of life in our credit-driven economy.
For many of us, most of the time this debt is manageable, but it can quickly get out from under our control. Many face an illness, an injury, a job loss or a large, unexpected expense in their families and suddenly find themselves unable to pay off their debts. An unpaid balance can continue to gather interest, and before long what was once a manageable load has become an apparently insurmountable mountain of debt.
Fortunately, there is help available. When a consumer files for bankruptcy, they get a chance to stop the vicious cycle of debt and have a new start.
The two forms of personal bankruptcy are known as Chapter 7 and Chapter 13 after their places in the U.S. Bankruptcy Code. In this blog post, we’ll take a quick look at each type.
Chapter 13
When you file for Chapter 13, the bankruptcy court puts a temporary stop to all efforts to collect debt from you. Instead, the court works with you and your creditors to develop a plan under which you will pay off your debts within 3-5 years. At the end of that time, the court may discharge much of any debt that remains.
Since Chapter 13 requires paying off debt over time, it is best for those who have a job or other steady source of income and expect to continue to have income throughout the repayment period.
Chapter 7
Chapter 7 is the fastest and most complete form of debt relief for consumers under bankruptcy law. Those who meet Chapter 7’s eligibility requirements can see most types of debts eliminated within 3-5 months.
Under Chapter 7, you will have to give up some of your assets in order to help satisfy your creditors. However, New York law allows for various exemptions that let bankruptcy filers keep much or all of their most precious property.
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Unfortunately, picking between Chapter 7 and Chapter 13 isn’t as simple as simply deciding which one sounds right to you. Each type has its own eligibility requirements and carries its own consequences for your credit rating in the future.
Although debt may be common in the United States, every consumer’s story of debt is unique. To learn how the bankruptcy code can apply to your specific circumstances, it’s wise to speak with an experienced professional.