Different Types of Bankruptcy
Bankruptcy is a legal procedure that provides debt relief to consumers who cannot pay their bills. The decision to file for bankruptcy is a serious step and is usually taken only when other efforts to correct financial difficulties haven’t worked. It is one of the most severe notations you can have on your credit report.
Most consumers who declare bankruptcy do so under Chapter 7 or 13 of the U.S. Bankruptcy Code. For people who are in debt, a Chapter 7 bankruptcy can be the only way out. However, future credit grantors may interpret it as a sign of both financial irresponsibility and deem the individual to be a very high credit risk. If you’re considering bankruptcy, exhaust all other options as there are several long-term negative financial ramifications.
What’s the difference between the various types of bankruptcy options?
Chapter 7 Bankruptcy
- A complete relief bankruptcy. The debtor is released from all repayment responsibility for the accounts included in the bankruptcy.
- Assets may be sold to repay creditors.
- Remains on a credit report for 10 years from the date of filing (3 additional years than most negative information)
- Considered one of the worst marks on your credit in the eyes of potential creditors.
Chapter 13 Bankruptcy
- Chapter 13 is a repayment-plan bankruptcy. You agree to repay your debts – or at least a portion thereof – according to terms approved by the court.
- A Chapter 13 bankruptcy remains on a credit report for seven years from the filing date (fewer years than a Chapter 7 bankruptcy).
- Your assets are not sold to repay creditors as they would be in Chapter 7.
