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Facts about the two types of consumer bankruptcy

Bankruptcy may be viewed as an effective way to get rid of debts and start over, but it is important for Ohio residents to understand that there are two different options for a consumer bankruptcy filing. While a Chapter 7 bankruptcy may be discharged approximately four months after its filing date, a Chapter 13 filing is a different matter. In this case, debts are adjusted rather than discharged, meaning that a restructuring of payments occurs for a period of three to five years. At the end of this time, the remaining unsecured debt included in the bankruptcy may be discharged.

With the discharge period being so much later in a Chapter 13 case, an individual might wonder why someone would choose this over a Chapter 7. Some individuals have no choice if they want to obtain relief from their debts. A means test is used to determine whether an individual meets the criteria for filing for a Chapter 7, and those who are ineligible are left to consider a Chapter 13 filing. Others may want to go with a Chapter 13 because of the less severe effect on their credit report in the long run: A Chapter 7 stays on one's credit report for 10 years, but a Chapter 13 only stays there for seven years.

It is helpful to recognize that the discharge date itself is not used for credit reporting; rather, the filing date begins the time period in which one's credit report can be affected. In considering these issues, an individual may choose to consult a professional who is experienced in handling bankruptcies so that all questions are cleared up prior to filing.

A bankruptcy lawyer could provide assistance as an individual explores all financial implications of Chapter 7 and Chapter 13 filings. Additionally, the lawyer could offer information about additional programs available to address excessive debt issues related to a job loss, medical emergencies or a death in the family.

Source: Fox Business, "When is a Bankruptcy Officially Discharged?", Erica Sandberg, August 04, 2014

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