Which is better – Chapter 7 or Chapter 13 Bankruptcy? Or should I try Debt Settlement instead?
Chapter 7 and Chapter 13 are the two most common types of bankruptcy cases filed by consumers (troubled businesses typically file Chapter 7 or Chapter 11). If you have been struggling with consumer debt (credit cards, medical bills, pay day loans, car loan, mortgage) and have been considering filing for bankruptcy, you may be wondering whether you should choose Chapter 7 or Chapter 13. You may also have heard of debt settlement as a way out of overwhelming debt. Each of these processes has advantages and disadvantages, and the right choice for you depends upon your own unique set of circumstances. Take a look below at some of the pros and cons of Chapter 7, Chapter 13, and debt settlement, and talk to an experienced Alabama bankruptcy attorney to find out which option is right for you.
Chapter 7 – Chapter 7, also often called “straight bankruptcy,” typically offers the most complete discharge of your debt. In a Chapter 7 proceeding, a bankruptcy court can wipe out, or “discharge,” your unsecured debt (which is debt which is not backed up or “secured” by collateral). You may think that Chapter 7 requires you to sell off your personal assets to pay your creditors before any debts are discharged; however, this is not always true. An experienced bankruptcy attorney can walk you through the many allowable exemptions to help you keep most, if not all, of your property. In order to be eligible for Chapter 7, you must pass a “means test” based on your income and expenses. If your income is too high, you may not be eligible for Chapter 7. A Chapter 7 bankruptcy stays on your credit report for ten years, during which time you may have to pay higher interest rates when seeking credit.
Chapter 13 – Chapter 13, also known as a “debtor’s court” or “wage earner’s plan,” offers you the opportunity to stop creditor harassment and pay off your debts over a three or five-year period by making a monthly payment you can afford. Chapter 13 can put a stop to foreclosure actions and allow you to repay your missed mortgage payment during the plan’s time period. A Chapter 13 can stop repossession and may even be able to lower your car payment. Other debts that can be paid through a Chapter 13 are back income taxes, back child support, and other secured loans. The bankruptcy court can adjust the amount of the unsecured debts you owe, and at the completion of your plan, the remaining unsecured debts may be discharged. Chapter 13 does not have the same low-income limits as Chapter 7, so it is easier to qualify for Chapter 13. A Chapter 13 bankruptcy stays on your credit report for seven years.
Debt Settlement – If you pursue this path toward debt relief, your attorney will negotiate with your creditors to get them to accept a lump sum payment which is typically less than the total amount you owe. Creditors may be willing to accept a lesser amount in satisfaction of the debt rather than keep trying unsuccessful attempts at debt collection or face the risk of having their debt discharged in bankruptcy. Debt settlement works best if you do not have too many different creditors to negotiate with, and if you have the ability to make a single lump sum payment to each creditor. It is important to make sure that your creditors correctly mark your debt as paid so that your credit score does not inaccurately report debts which you have satisfied.
To discuss your financial situation and explore your options for debt relief in Alabama, call The Dansby Law Firm in Montgomery at 334-834-7001.