You have found yourself in a financial bind, and you can’t see how it’s going to get better. You made some bad decisions, and now your hours have been cut back at work, too. You were already living paycheck to paycheck, and you can’t justify cutting back in any area of your life. You already coupon for lower grocery costs, share rides with coworkers and live in a cheap rental.

What are your options? Should you pursue a Chapter 7 bankruptcy, or does a Chapter 13 bankruptcy make more sense?

A Chapter 7 bankruptcy is also known as liquidation bankruptcy. It has many exemptions, but you essentially sell items or liquidate assets to pay back as much as possible to creditors. Then, once the bankruptcy is complete, the court dismisses any extraneous, unsecured debts. A Chapter 7 bankruptcy can significantly impact your credit rating.

In the case that you don’t qualify for a Chapter 7 bankruptcy, a Chapter 13 bankruptcy may work for you. If you have some income to repay the debts, then a Chapter 13 bankruptcy might be a good option. With this plan, you pay back a portion of your debts over the course of three to five years.

A bankruptcy trustee receives your payments to distribute those payments to your creditors, so you don’t have to talk to them directly. If you choose this route, you need to have enough income to pay your secured debts and priority debts in full by the end of the three-to-five-year plan, unless you have an agreement for debts to continue beyond that point.

These are just two bankruptcy options. Your attorney can talk to you about other possibilities if you feel you are unable to pay what you owe.

Source: FindLaw, “Chapter 13 vs. Chapter 7 Bankruptcy,” accessed April 25, 2017

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