Consumers in Shreveport, Louisiana, may be able to file for bankruptcy when they feel overwhelmed with debt. The top reasons for bankruptcy are medical debt, divorce and job loss. It’s important to understand the pros and cons before filing, which will depend on the type of bankruptcy.
Chapter 7 bankruptcy pros and cons
Chapter 7 bankruptcy, or liquidation, allows a consumer to discharge unsecured debts by selling nonexempt property. The main con of Chapter 7 is that the consumer has a high chance of losing assets that they want to keep. However, a pro is that they still may be able to keep nonexempt assets up to a certain value under state or federal exemptions.
Another drawback is that high-income earners typically cannot file Chapter 7 if they have too much disposable income. They still may pass the means test with income exemptions, such as for food, mortgage, rent and transportation.
Chapter 7 usually clears debt in four to six months, which is faster than Chapter 13. However, a Chapter 7 filing commonly remains on the credit report for 10 years, making it harder to get loans.
Chapter 13 bankruptcy pros and cons
Chapter 13 is often called a wage earner’s plan because it allows a gradual repaying of debt. The consumer must submit a payment plan to the court for approval, and discharges commonly occur within five years. While Chapter 13 gives consumers more time to pay, they must dedicate disposable income to paying debt.
Chapter 13 remains on a credit report for seven years, but creditors look at it more favorably. A primary benefit of Chapter 13 is the filer doesn’t have to close their business or give up assets. However, bankruptcy doesn’t remove liens, so they must pay current mortgage or vehicle debt to avoid losing property.
All bankruptcy types give the consumer the benefit of the automatic stay. Creditors are briefly prohibited from attempting collection or contacting filers. Knowing the pros and cons of bankruptcy types can help consumers make an informed decision before they file.