Filing for bankruptcy can be an essential lifeline for Connecticut consumers who are drowning in debt. However, deciding to file for bankruptcy is not quite as simple as filing a piece of paper and then going from there. Before any of that can take place, individuals must decide whether they will pursue Chapter 7 or Chapter 13 bankruptcy.
In some cases, the decision regarding which bankruptcy to pursue will be made for the filer. If a person’s income falls above the state’s average income, then they do not qualify for Chapter 7 and must instead use Chapter 13. But what if a person qualifies for Chapter 7 but is curious about the possible benefits of Chapter 13? There are a few key differences that people should keep in mind, particularly when it comes to how debt is discharged and which assets a person may keep.
Homes and vehicles are not just important to daily life, they are often essential. In some cases, a person’s mortgage payment might be cheaper than the rent in his or her area, and a vehicle could be someone’s only way to get to and from work. In Chapter 7, filers generally have to give this property up or arrange to have it sold. Most people who file for Chapter 13 can stay in their homes and continue driving their vehicles.
Chapter 7 also requires a person to turn over all of his or her nonexempt valuable property. This means that a large portion of a person’s assets will be collected and sold to settle some of the debt. In Chapter 13, people can generally keep this type of nonexempt property.
Perhaps the biggest difference between Chapter 7 and Chapter 13 bankruptcy is the debt repayment plan. In Chapter 7, property is sold to settle some of a person’s debt and then the remainder is discharged. Those filing for Chapter 13 will have to create a three- to five-year repayment plan, with most remaining debts discharged at the end. Those in Connecticut who are considering filing for bankruptcy should be certain that they understand the benefits and drawbacks of each process, particularly in regards to their own unique situations.