Washington residents struggling with debt may be aware that they can institute court proceedings in the form of bankruptcy to get rid of some or all of their debt. During this process, the court determines whether the filer has the means to pay their debt, by examining their assets and debts. It is a serious step to take, which is why people often think long and hard about whether to file it or not. Since the long-term consequences are so serious, it is important to understand the different bankruptcy options available to everyone and ensure the one being filed for is the best for one’s situation. The most common forms of bankruptcy are Chapter 7 and 13 and there are some key differences between them.
Chapter 7 bankruptcy is often referred to as straight bankruptcy, since most unsecured and some secured debts can be eliminated by surrendering a number of assets. Unsecured debts are generally credit card debt and personal loans. It doesn’t require a repayment plan and it is possible to retain ownership over some assets, depending on their value. If someone has little to no property and has an income level that falls below the threshold level with mostly unsecured debt, this might be the bankruptcy option for them.
Chapter 13 bankruptcy requires individuals to commit to a repayment plan to pay a substantial portion of one’s debt over three to five years. Monthly payments are made to a trustee, who then gives the money to creditors. Whatever debt is still left at the end of the repayment plan, is discharged. This works well for those who can afford to pay some, but not all of their debt, in a more manageable way. If someone has debts that cannot be discharged through bankruptcy, such as domestic support obligations or unpaid income taxes, this might be the option for them.
Filing for bankruptcy to get control over one’s financial life is an important decision that individuals make, which is why it might be helpful to speak to an attorney. He or she can help filers determine which option works for them and how to make their choice work for them.