There really isn’t a bankruptcy that is “worse” it all depends completely on your financial situation, your goals and needs. A Chapter 7 Bankruptcy commonly called a liquidation. Chapter 7 allows individuals to give up certain nonexempt assets and walk away from most of the individuals debts. To qualify, debtors must pass the means test — that is, their income must be less than their state’s median income.
While a Chapter 13 bankruptcy is designed for individuals who need to restructure their debt into a manageable repayment plan. Chapter 13 is much like a debt consolidation – except this one actually works since it has some legal power behind it. Some creditors will get paid back in full with interest, others get paid in full and the remainder will be repaid a percentage of the debt. Chapter 13 can be used by debtors who do not qualify for Chapter 7 under the means test.
It is very important for you to sort out your financial issues and then decide, with your attorney, which bankruptcy will be best to achieve your long term goals. If you are not currently eligible to file for a Chapter 7 bankruptcy, then you may be able to file for a Chapter 13 with the same circumstances. Even if you are eligible to file for a Chapter 7 bankruptcy, there are some cases that it might be more beneficial for you to file for a Chapter 13. Some of these include if you are behind on a payment on a car loan or on a mortgage, you really want to pay off your debts, you have tax obligations or student debts that cannot be discharged in a bankruptcy, etc.
There is always some type of bankruptcy option what it comes down to is what is best for your personal and long term financial situation. Both types of bankruptcy will have an impact on your credit. However when someone is looking at your credit report they will look at more than your score. A Chapter 13 is like repayment or restructure plan, whereas in a Chapter 7 your debts are wiped out. A Chapter 13 bankruptcy will be seen as that the debtor made his or her best effort to pay back those debts. You can rebuild quite quickly after you rile bankruptcy as outlined in the new book Life After Bankruptcy.