Steps To Take Before Filing For Bankruptcy
Step 4. Decide What Type of Bankruptcy To File
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Look at the pros and cons and requirements for the three common types of bankruptcy and determine which is best for you.
All types of bankruptcy affect your credit score for 7 - 10 years. Although the impact depends on your particular situation, the effect could be 100 points.
The biggest difference between Chapter 7 and Chapter 13 bankruptcy is that under Chapter 13 you don't have to sell your assets.
In addition:
- Under Chapter 7, you have to go through financial counseling and education.
- Chapter 7 allows creditors to proceed against any co-signers you have on your debt for full payment. Under Chapter 13, creditors cannot go after co-signers until your payment schedule is completed.
- Chapter 7 is less complicated and, therefore, less expensive.
- Unlike Chapter 7, Chapter 13 does discharge debts that arise from fraud, taxes, child support, and educational loans.
- Most Chapter 7 bankruptcies take from three to six months after credit counseling. Chapter 13 bankruptcies generally last three to five years. The length of time a proceeding takes varies according to where it is filed.
There are three situations in which you should consider a Chapter 13 bankruptcy:
- Steady Income: If you have a steady income that lets you pay off your debt over a period of three to five years, Chapter 13 might work for you.
- Co-Signer: If a friend or relative co-signed one of your debts, a Chapter 13 might be better because, under a Chapter 7, your creditor can hold your cosigner fully responsible. Under Chapter 13 creditors cannot go after your co-signer until after you've had a chance to repay what you can.
- Fraud: If fraud is involved in your debt, it is discharged in a Chapter 13 proceeding, but not a Chapter 7.
Alternatively, if you owe more on your home than it is worth, and you want to start fresh, consider Chapter 7.
If you have a high net worth and a complicated situation, also consider Chapter 13 Bankruptcy.
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