New Hampshire residents who are considering filing for bankruptcy may feel that doing so may save them from otherwise insurmountable financial complications, but some may not fully understand what each category of bankruptcy entails. Understanding the basic aspects of Chapter 7 and Chapter 13 bankruptcies could help such debtors in planning ahead more effectively.

Debtors who have received credit counseling and can prove through means and income tests that they are unable to repay their personal debts may be viable candidates for Chapter 7 bankruptcy. Occasionally referred to as liquidations, Chapter 7 bankruptcies eliminate unsecured debts including but not limited to unpaid credit card bills and medical expenses from a debtor’s repayment obligations. Debtors should be aware, however, that certain debts connected to non-payment of secured obligations such as a home mortgage or a car loan are not subject to discharge. Agreements under Chapter 7 often include forfeiture of these assets to meet the debtor’s obligations.

Chapter 13 is available to debtors with steady incomes who can demonstrate their potential to eventually repay their debts in part or in full. Filing under this category enables a debtor to repay debt in a reorganized payment structure within three to five years. It also allows debtors to keep secured material assets that could be lost in a Chapter 7 bankruptcy, and it places a stay on creditor actions so that neither an individual nor any co-signers on debts should fear further collection-related harassment.

Entering bankruptcy protection can substantially impact a debtor’s credit rating, but the opportunity to recuperate and establish a fresh financial start could be worth any temporary damage. Consultation with an attorney or financial adviser prior to filing may be effective in guiding an individual to a beneficial choice.

Source: Ebony, “The Different Degrees of Bankruptcy, Explained“, Lynnette Khalfani-Cox, June 19, 2014