Chapter 7 and Chapter 13 are the two primary branches of bankruptcy that consumers use for relief from financial burdens. While both offer relief, each is different. If bankruptcy is an option you are considering, you must know the differences. It is also helpful to understand the reasons people use Chapter 7 and Chapter 13.
Reasons People Use Chapter 7
Many people prefer Chapter 7 over the alternative because it is faster and does not require repayment of some debts. The primary reason people use Chapter 7 is to eliminate unsecured debts, such as medical bills, personal loans, and credit cards. If you have qualifying debt and use Chapter 7, the case will forgive these debts. Another reason people use Chapter 7 is to eliminate a large debt that resulted from the loss of a home or car. If you lose your car or home, you might owe the lender some money for it. Lenders call this amount the deficit, which refers to the amount the lender sold your asset for minus the amount you owed. Filing for Chapter 7 eliminates deficits of this kind.
Reasons People Use Chapter 13
People use Chapter 13 for other reasons. The first reason is that they do not qualify for Chapter 7. If a person earns too much money, he or she may not be able to use Chapter 7. The person could use Chapter 13, though, and this is a prevalent reason that people choose this branch. The second reason people use Chapter 13 is to save their homes from foreclosure. A lender can begin pursuing foreclosure on a home when the borrower falls behind on payments. You can stop the foreclosure by paying the past-due balance and staying current on the payments. The problem is that you might not have the money to pay this off. If you want to keep your home, you could keep it by filing for Chapter 13. People also use Chapter 13 to avoid losing their cars and other assets. Others use this branch because they prefer repaying their debts instead of letting the court discharge them.
Knowing and understanding these reasons may help you select the right branch for your situation. If you still do not know which branch you should use, meet with bankruptcy attorneys. A lawyer can give you advice and tips about bankruptcy and your financial situation to help you make an informed decision.