The first decision that everyone has to make when filing for bankruptcy is choosing the right type of bankruptcy to file. Chapter 7 and Chapter 13 offer similar but distinct methods of helping you handle debt. Here is a deeper look at both options and how to know which one is better in your situation.
Chapter 7: Liquidation
Chapter 7 bankruptcy focuses on paying debts through liquidation or selling assets. This is the type of bankruptcy that most people fear since they could lose what they own. The court appoints a trustee, and you hand over certain assets to be sold. The profits from those sales go toward paying debt.
The benefit of this is that you can get out of debt quickly and completely, and probably without paying the full amount that you owe. However, some of your assets could be sold to pay debts.
Chapter 13: Repayment
Chapter 13 focuses on repaying your debts. You work with the court to develop a repayment plan to pay as much as possible in five years. The benefit of Chapter 13 is that you can stay in business and keep earning income. You also don’t lose assets to a sale.
When Chapter 7 Is the Better Option
Choosing between Chapter 7 and Chapter 13 bankruptcy largely depends on your ability to repay debt. If you can repay your debt, either through a steady income job or a business, then you may want to try to file for Chapter 13. There are a few limitations on who can file for it, but meeting the requirements means you don’t face the risk of having to liquidate your assets.
If you can’t repay your debt through steady income or don’t meet the requirements for Chapter 13, then you can try to file for Chapter 7. You may lose some of your assets, but you won’t lose everything. Minnesota has protections for certain assets in bankruptcy so that you can keep the things that mean the most to you. Either way, you will find yourself out of debt in five years and can start rebuilding your finances without a mountain of debt weighing you down.
Get Help Choosing the Right Type of Bankruptcy
The type of bankruptcy that you file plays a big role in how you restart your financial life. Since there are restrictions, knowing which type of bankruptcy you can successfully complete matters even more. Get help from experienced bankruptcy attorneys before taking action. Contact Kain + Henehan by calling (612) 438-8006 or filling out the online form to discuss your case with a bankruptcy attorney.
