When you find yourself swimming in debt, you may also find yourself in an ocean of debt-relief options. Which one do you choose? First, be aware of scams. Many people under the guise of a legitimate company will take advantage of your desperation, offering too-good-to-be-true plans for eliminating debt that do nothing but make more of your money disappear.
An option you may be considering is bankruptcy. Two types exist for consumers: Chapter 7 and Chapter 13. Chapter 7 eliminates certain debts, so you do not have to repay them and can start with a clean slate. Chapter 13 involves a reduced payment plan so you can retain property. How do you know if Chapter 13 is right for you?
Income and assets
First, you must take a means test to qualify for Chapter 7. If you do not meet the requirements, then you will have to go with Chapter 13. However, this is not necessarily a bad thing. Chapter 13 is preferable if you have many high assets you do not want to lose, such as your home to foreclosure. Chapter 7 only protects property up to a certain amount in Maryland and then requires you to liquidate the rest to pay off debts.
Do you want to learn how to better manage your money? Chapter 13 can provide good practice, as you have to commit to the payment plan for three to five years. This means following a strict budget to prevent missing payments or accumulating debt again.
You can also rebuild your credit quickly by paying on time. Soon you might qualify for a secured credit card to further establish good credit, or you can choose to forego cards and loans until the plan is complete just to be safe.
Ultimately, the decision comes down to what is best for your personal circumstances. Your bankruptcy attorney can help you figure out whether Chapter 7 or Chapter 13 is the best for your situation.