Sometimes, situations cause enormous debt, and a debtor can no longer pay them. Bankruptcy provides relief by erasing certain debts through Chapter 7 or Chapter 13. While debtors in Livonia, Michigan commonly choose Chapter 7, Chapter 13 offers several benefits.
Chapter 13 vs Chapter 7
Chapter 7 is a bankruptcy process that discharges some unsecured debts, such as medical bills. Chapter 7 requires the debtor to sell nonexempt assets or anything the court considers nonessential for living. The consumer must pass a means test, and if they have enough disposable income to pay debts, they can’t file Chapter 7.
Chapter 13 is a bankruptcy proceeding for consumers who have enough disposable income to pay debts. The debtor submits a repayment plan to the court, and if approved, they have three to five years to pay it.
Benefits of Chapter 13 bankruptcy
Unlike Chapter 7, Chapter 13 doesn’t require the selling of assets, as long as the debtor keeps payments current It means they can keep their business open and help them catch up on mortgages in arrears.
The debtor can pay delinquent taxes without interest or domestic obligations over the debt repayment period. The automatic stay is available in all bankruptcy chapters, which temporarily halts wage garnishment and foreclosure.
While the Chapter 7 discharge is faster, it remains on the credit report for ten years. Chapter 13 remains on the credit report for seven years, and lenders view it more positively. If a debtor has filed Chapter 7 recently and needs to file again, they don’t have to wait to file Chapter 13.
Bankruptcy doesn’t always discharge all debts, but it gives some relief in the form of an automatic stay and the discharge of many financial obligations. The right bankruptcy for an individual or couple depends on their current financial circumstances and future prospects.