If you are faced with the prospect of filing for bankruptcy, then you are probably already stressed out and drowning in confusing information. Before hiring a Rockville bankruptcy lawyer or filing any paperwork, it’s useful to understand the two basic options available. The most commonly used personal bankruptcy filings are Chapter 7 and Chapter 13. Each has its own costs, pitfalls and benefits.

Pros of Chapter 7

When you file for Chapter 7 bankruptcy, you receive immediate relief. Creditors will stop calling and your wages will no longer be garnished. This filing is focused on giving people a fresh start. Even after bankruptcy, your credit score will not take a hit from some negative markers. This leaves you in a good place to rebuild. Also, most Chapter 7 filings are successful. There are certain guidelines for filing for Chapter 7, but as long as you are honest and fit within the guidelines, there should be no problem in receiving debt relief. 

Cons of Chapter 7

One requirement of filing Chapter 7 bankruptcy is a means test. This test determines if your income is less than the median income for a family in your state. If you make too much money, then you can not file for Chapter 7 bankruptcy. If you pass the means test, then part of your debt will first be paid off with your liquid assets. Liquid assets will be quickly turned into cash and paid to your creditors through a court-appointed trustee. There are exemptions to this, including some personal property and equity. There are also some debts that this type of bankruptcy does not erase, such as child support or alimony. Some other types of debt may only be partially forgiven. Lastly, this filing does not protect any co-signers of your loans. 

Pros of Chapter 13

With this type of bankruptcy, you keep all your assets. Debts are paid through a court-mandated payment schedule over three to five years. If you complete the payment schedule, then the remainder of your debts are discharged. There is no means test for Chapter 13. Therefore, if you have assets to protect or earn a higher income, then Chapter 13 may be a good option. 

Cons of Chapter 13

Successfully completing a Chapter 13 bankruptcy is difficult. It is estimated that only about 33% of these cases complete with debt being discharged. The main reason for this is the payment plan. When already in financial trouble, making consistent payments for five years can be difficult. Many things can happen in five years. Also, there are no credit protections with Chapter 13, so many people end up worse than they began. 

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