When is Chapter 13 more appropriate than liquidation?

One of the first questions any Mississippi resident may have about personal bankruptcy is what is the difference between Chapter 7 and Chapter 13 bankruptcy? Both types are used by individuals to obtain debt relief and a fresh financial start. However, there are key differences between the two that many debtors are unaware of until they are pondering bankruptcy for themselves.

In short, Chapter 7 allows a debtor to liquidate most of his or her debts. Chapter 13, on the other hand, involves a repayment plan that is approved by one's creditors. Since neither type of bankruptcy appears favorable on one's credit report, some may assume that Chapter 7 is always the more financially beneficial option. After all, if one is drowning in overwhelming debt, liquidation may appear more manageable than repayment.

Still, there are many reasons why Chapter 13 may actually be the more appropriate option for some in the Southaven and De Soto areas. First, the repayment plan is relatively short, usually three to five years. If a debtor sticks with the plan and follow through with timely payments, the completion of such a plan shows creditors that, despite a bankruptcy, the debtor is still able to fulfill important financial obligations. This can be beneficial in the long run as filers later apply for loans.

In addition, filing for Chapter 13 often protects the co-signer of a debtor under a stay that can be enacted under the bankruptcy. Moreover, at the conclusion of the repayment plan, a filer under Chapter 13 usually has the remaining debt discharged. When debts have been secured via collateral, though, there may be more of an opportunity for them to still be collected.

Both types of personal bankruptcy have their advantages and disadvantages for debtors. By speaking about one's financial situation with an experienced bankruptcy attorney, filers can learn which type will produce the most benefits for their finances.

Source: The Mississippi Bar, "Chapter 13 bankruptcy allow for repayment over time," accessed Aug. 23, 2014

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