When you lose control of your finances, bankruptcy is a chance to get back on your feet, start again, and rebuild your financial landscape. Deciding on the best option for your situation can, however, seem overwhelming; there are a few different types of bankruptcy, and your financial circumstances will largely dictate the path you choose.

Chapter 7 bankruptcy is perhaps the better-known option, and this allows individuals to erase their debt in one go, a hugely appealing action. However, on the downside, Chapter 7 requires you to give up all nonexempt assets, which will then be sold, and any profits divided between the creditors. This means that you could lose your security if you have potentially valuable assets such as a vehicle or even property.

For those with assets and a current income, Chapter 13 will often be a better option. Under this filing, you are permitted to retain your property. Instead, a payment plan is set up, usually over between 3 and 5 years, which allows you to at least partially pay back some of your creditors. After the pre-agreed period is over, the remainder of your debt will be erased off. This can be a great compromise; you can keep your property to prepare for life after bankruptcy, your creditors get paid, and you find an affordable, achievable way to tackle your debts.

In the simplest terms, a Chapter 13 bankruptcy filing is known as a ‘reorganization’ of existing debts, rather than a erase-out or liquidation solution offered by Chapter 17.

What Are the Advantages of Chapter 13?

Chapter 13 bankruptcy comes with a range of advantages for debtors, and these include:

Relief from Collection

As soon as the bankruptcy petition is filed, the debtors will receive instant relief from any collection efforts. An ‘automatic stay’ will be put into place as soon as the petition is filed, and this means that from this moment, creditors are prevented from initiating or maintaining any attempts to collect outstanding amounts. If creditors attempt to violate this, they face severe punishment. This relief can offer enormous comfort for debtors, who have often faced years of harassment.

Retain Property

As we mentioned, a Chapter 13 ruling allows debtors to keep hold of their property, and this often includes the family home. Unlike a Chapter 7 ruling, there is no requirement to liquidate assets to pay off creditors. The creditors will still get paid by establishing a three to five-year plan paid through disposable income, but the debtor also gets to retain their critical assets.

An End Date

Once the plan payment is complete, the debtor will be able to discharge the majority of their remaining debt. As a bonus, creditors generally receive more from a Chapter 13 filing, and so this can work out as a real advantage for all parties.