If you are struggling with debt in the Rochester area, you may have questions about your debt relief options, including Chapter 7 and Chapter 13 bankruptcy. Filing for bankruptcy is a big step that should not be taken lightly. Here are four of the most common questions people ask when considering taking this step.
1. What is the difference between Chapter 7 and Chapter 13?
- Chapter 7 is a popular choice for people looking for a fresh financial start because it completely wipes out unsecured debt. In a Chapter 7, the debtor's non-exempt assets are liquidated and debts discharged after a few months.
- Chapter 13 is often the right choice for people who are struggling with debt but earn a steady income and have assets like a house or car they want to keep. In a Chapter 13, debt is consolidated into a manageable payment plan that is stretched out over a three to five year period.
2. Will bankruptcy get creditors off my back?
Yes. Filing for bankruptcy triggers the automatic stay, a powerful legal injunction that stops your creditors from taking collection actions against you and from even contacting you at all. As soon as you file under Chapter 7 or Chapter 13, the harassing phone calls and letters will stop.
3. Does filing for bankruptcy mean I will lose everything?
No, filing for bankruptcy doesn't mean losing everything you've worked for. In a Chapter 7 bankruptcy, the debtor's assets are liquidated and sold to pay off creditors. However, many people who qualify for Chapter 7 have little to lose because the assets they own fall within the list of bankruptcy exemptions. If you file under Chapter 13, you can restructure debts and set up a payment plan to pay off the things you want to keep, such as your car or home.
4. Will filing for bankruptcy ruin my credit forever?
No. Most people who need to file for bankruptcy do not have very good credit to begin with. Bankruptcy will have a short-term negative impact. In the long term, however, filing for bankruptcy is often the first step to restoring good credit. By making wise financial choices after bankruptcy and taking on manageable amounts of debt, you can slowly rebuild your credit and pave the way to a brighter financial future.
For specific information on how bankruptcy can help you, talk to a lawyer who has experience handling Chapter 7 and Chapter 13 bankruptcies in Minnesota.