Financial hardship has a snowball effect. Money woes create anxiety and fear. They undermine confidence and trigger self-doubt. When you’re worried about money, it feels as if your life is out of control. While bankruptcy should be considered a last resort, for many people, it’s a way to regain mastery over their financial future.
When is bankruptcy an option?
People file bankruptcy when there’s no other way for them to meet their debt obligations. This may be the result of poor planning, but more often than not, financial hardship is a consequence of situations out of your hands. In many cases, an illness or the loss of a job can turn financial solvency into turmoil in a matter of months. When that happens, bankruptcy offers some relief to conscientious people.
How will bankruptcy affect my credit score?
If your debts are discharged, those creditors will be removed from your credit record. However, a Chapter 7 bankruptcy stays on your credit report for ten years while a Chapter 13 stays on your report for seven years.
What’s the difference between Chapter 7 and Chapter 13 Bankruptcy?
Chapter 7 and Chapter 13 are the two most commonly used bankruptcy options.
Chapter 7 bankruptcy
Chapter 7 is often referred to as “liquidation bankruptcy” because you may be required to liquidate certain non-exempt assets, such as a car or a vacation home, to pay off some of the debt. You must also meet income eligibility requirements and other criteria. However, Chapter 7 will discharge most unsecured debt, including credit cards and personal loans, in as little as three to four months.
Chapter 13 bankruptcy
Compared to the short turnaround time of the average Chapter 7 bankruptcy, Chapter 13 bankruptcy allows you to repay debts within three to five years. A repayment plan is established that lets you pay creditors over time without having to liquidate your property. As with Chapter 7 bankruptcy, you’ll have to meet criteria. Chapter 13 is often referred to as a “wage-earner’s plan” because you must have a regular income that will permit you to make monthly payments.