There are a few ways to deal with debt today. Bankruptcy is a valid option for households that are in deep financial trouble. Two types of bankruptcy exist. Chapter 7 Bankruptcy seeks to discharge all debts. Chapter 13 attempts to restructure the debt into manageable payments. There are a few ways to know that Chapter 13 bankruptcy is the best choice.
Repaying Debts at the Current Rate Is impossible
A clear sign that Chapter 13 bankruptcy is the right choice is if it has become impossible to ever possibly pay off existing debts at the current rate. Late fees, penalties and interest can all accrue and cause debts to grow significantly every year. Chapter 13 bankruptcy will restructure those debts so that it is possible to make payments and eventually repay creditors. A stable income is required for this form of bankruptcy to work.
Eviction or Repossession Is Imminent
Any secured property such as a car or home could be taken away if old debts are not paid. This can be devastating for a family. Chapter 13 can be the right choice if eviction or repossession is imminent. Chapter 13 bankruptcy can halt those processes and give debtors a chance to repay the creditors. It is a way to protect the property after an emergency or a sudden reduction in income.
Chapter 7 Bankruptcy Is Not an Option
A major sign that Chapter 13 bankruptcy is a good choice is if Chapter 7 bankruptcy is not an option. Many different types of debt cannot be discharged through a Chapter 7 filing. Another restriction is that Chapter 7 bankruptcy filings come with income limitations. People making too much cannot file. If Chapter 7 bankruptcy is not an option and large debts are going unpaid, then Chapter 13 is the best option.
Legal Action Is Pending
Creditors have many options available to recoup debts. One of these options is to file legal charges against the debtor. The legal action could result in multiple problems such as wage garnishment for years until the debt is repaid in full. If legal action is pending or being threatened, then it is likely time to file for Chapter 13 bankruptcy. Filing for bankruptcy can protect households against these types of lawsuits.
Maintaining Current Assets Is Important
A way to know that Chapter 13 bankruptcy is the best option is if maintaining current assets is important. There are certain assets that can be seized and sold under Chapter 7 bankruptcy. This can include second cars or property outside the primary residence. Chapter 13 bankruptcy does not require asset seizure. This allows families to repay the debts without losing any possessions.