In today’s culture, it is easy to find yourself mired in debt. A single poor decision, a sudden medical emergency, a predatory loan, a scam — all of these have the power to drop you from perfectly fine to struggling.
The government realizes this and provides a valuable tool to help you recover in the form of bankruptcy. In spite of the stigma surrounding it, the process is nothing to feel shame about. People from all walks of life, including famous stars, experience monetary difficulties, often through no fault of their own, that lead to them filing for bankruptcy. What kind do you need, though? While the U.S. has six types, only two, Chapter 7 and Chapter 13, are relevant to regular consumers like you. The two differ from each other in a couple of key areas.
Eligibility
One of the major differences between the two is how you qualify. It basically comes down to your income. For Chapter 7 bankruptcy, you must make below the state average or pass a means test. If you fail to meet the earnings requirement or are behind on a mortgage and want to retain your home, then you need to consider Chapter 13 bankruptcy.
Method
The other main distinguisher between the two chapters is how they eliminate your debt. In Chapter 7 bankruptcy, your property is exempt and resulting in no repayment to the creditors. A Chapter 13 bankruptcy involves the development of a payment plan over a three to five year period of time making a Chapter 7 much faster.
Both Chapter 7 and Chapter 13 bankruptcy are viable avenues for wiping the slate clean and gaining a fresh start. However, there are certain kinds of debt (student loans, child support and alimony) that neither covers.