Coming to the conclusion that you should file for bankruptcy in California can be daunting. You might be worried that it will damage your credit and finances as a whole, but it might be necessary. Once you’ve decided to go this route, you might want to determine whether you should choose Chapter 7 or Chapter 13 bankruptcy. It helps to know the differences between them.
What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy is often known as liquidation. When you’re in debt, you have the opportunity to eliminate the problem of crippling debt that you would otherwise not be able to pay back. When you file a petition, it puts an automatic stay in place, preventing your creditors from attempting to collect any more debt from you. It stops them from taking legal action against you and prevents them from harassing you over the phone.
However, Chapter 7 bankruptcy doesn’t protect you from issues like foreclosure or repossession. When you file this type of bankruptcy, it stays on your credit report for 10 years.
In order to qualify for Chapter 7 bankruptcy, you must pass the means test. This evaluates your income, expenses and your number of dependents.
What is Chapter 13 bankruptcy?
Chapter 13 bankruptcy allows you to reorganize your debt in a way that makes it easier to pay back your creditors. You are given a repayment plan that works for you and lasts three to five years before your debt is discharged. To be eligible to file, your unsecured debt cannot exceed $419,275 and your secured debt can’t exceed $1,257,850.
When you file Chapter 13 bankruptcy, it remains on your credit report for seven years.
Which type of bankruptcy is better for you?
You can determine which form of bankruptcy is better for you based on your financial situation and what financial goals you hold for the future. You might want to consult with a professional who can explain the eligibility and other requirements associated with each form.
Once you have decided whether Chapter 7 or Chapter 13 bankruptcy is better for you, you can breathe a sigh of relief that you are on the road to a fresh start.