There is an old saying, “Neither a borrower nor a lender be.” If you are struggling to pay your debt, you probably agree with the first part. The problem is, the second part does not apply to banks. They make millions of dollars by lending money. It is in their interest to encourage people to take out credit they cannot afford to pay back.
Eventually, as a borrower, you may decide enough is enough and consider bankruptcy. Spending every day worrying about how you will pay your debts is not a sustainable way to live.
As an individual, you have two bankruptcy options: Chapter 7 and Chapter 13. However, to be eligible for Chapter 7, you must pass a means test with an income below the maximum threshold. If you have declared bankruptcy before this may also limit your options. Presuming you do have the choice, these are the differences between the two:
- Chapter 7 gives you a fresh start, but you may have to sacrifice some of your possessions to get this. It will entirely erase most debts, but outstanding taxes, child support payments, alimony payments and student loans will remain. You will be required to sell property, such as a home or car, to pay your creditors what you can. It is a faster process than Chapter 13 but affects your financial record for longer.
- Chapter 13 restructures your debts rather than clears them. You must agree to a set of payment schedules and meet them. Some creditors may agree to the reduction of debt, but you will still have to pay something. The benefit is you generally get to keep your property.
If you are tired of being enslaved to your debt and the banks, seek legal advice to understand which is the best bankruptcy option for you.