Missouri residents may be surprised to hear that around a million businesses and people file for bankruptcy every year. Federal bankruptcy law allows people to file twice in a lifetime to get some relief from their debt. However, there are certain qualifications that must be met in order to be eligible, and they differ depending on the type of bankruptcy one is filing for — Chapter 7 or 13.
Chapter 7 bankruptcy allows filers to discharge the vast majority of their debts. Any entity or individual can file for it, if they meet the required thresholds. It may also absolve the filer of most of their debt, as lenders can collect a debt through the sale of nonexempt property. If there is no qualifying nonexempt property, lenders are not going to be able to collect. Due to this, Chapter 7 bankruptcy allows filers the opportunity for a fresh start. Though, filers must keep in mind that they will lose most of their nonexempt property, and there must be a low income in order to qualify.
Those who do not qualify for Chapter 7 may be able to qualify for Chapter 13 bankruptcy. In fact, the vast majority of filers qualify for it, since the threshold for qualification is very high. Chapter 13 does not get rid of debt like Chapter 7 does — monthly payments need to be made. As long as payments are made in a timely fashion, debtors cannot take legal action against the filer. Since filers of Chapter 13 are still going to continue paying off their debt, their credit score does not take that big of a hit.
Whether one applies for Chapter 7 or 13 depends on one’s individual circumstances and the eligibility requirements. This is why it is so important to understand the differences and benefits of each.