If you’re one of many Minnesota homeowners who have been struggling to stay afloat financially in recent years, you may also be among those who are currently exploring various options for debt relief. Numerous issues may have sparked your financial upset, such as loss of income, medical bills or unexpected needs, like car repairs. In some cases, it’s possible to get things back on track by making a few adjustments. At other times, additional measures are necessary, such as filing for Chapter 7 or Chapter 13 bankruptcy.
These are both programs offered as financial tools to obtain debt relief. Each program has its own eligibility requirements, which you must fulfill to qualify as an applicant. By reviewing the requirements for each type of bankruptcy, you can determine which petition to file.
Chapter 13 bankruptcy is for wage earners
If you have a reliable income and are able to continue making payments to satisfy your existing debts, you might qualify for Chapter 13 bankruptcy. Your lenders would have to agree to participate. If you qualify, the basic process will include a restructuring of your payment plans. This is sometimes accomplished by extending the life of a loan or by temporarily reducing monthly payments.
One of the benefits of Chapter 13 bankruptcy is that you would retain ownership of your assets since you would still be paying off your debts. This is a primary difference between this type of debt relief and Chapter 7, as you will learn in the next section.
Chapter 7 bankruptcy typically involves liquidation of all assets
If you do not have reliable income or your income level is below a certain amount, you would not be eligible for Chapter 13 bankruptcy but may be able to file a Chapter 7 petition. Under this program, the court would sell your assets, and then the proceeds would pay off your debts. While it is helpful to those who need to start afresh and wipe the slate clean, there are downsides to the program, as well.
When you file for bankruptcy in Minnesota or anywhere, it is listed on your credit report. One of the potential downsides of Chapter 7 is that it will show on your credit history for 10 years, whereas Chapter 13 would be removed from your report several years earlier.
Determining which bankruptcy program is best for you
Your finances can be carefully reviewed to help you determine whether Chapter 7 or Chapter 13 bankruptcy is the best fit for your debt relief needs and ultimate financial goals. Keep in mind, as well, that not all forms of debt are dischargeable through bankruptcy, such as child support or compensation you’ve been ordered to pay as a result of litigation.
On the bright side, remember that most financial crises are temporary, and with effective support, you may be able to overcome your current money problems and create a plan for restoring solvency down the line.