What Are My Options For Filing Bankruptcy?
The Chapter 7 Bankruptcy Option
Chapter 7 bankruptcy is a legal process whereby most unsecured debts can be cancelled, or “discharged.”
Chapter 7 bankruptcy is referred to as liquidation because the bankruptcy trustee may sell the debtor’s assets-those not exempt under bankruptcy laws-to benefit his or her creditors.
Many Chapter 7 bankruptcy debtors have no non-exempt assets; in cases like these, the unsecured debts that qualify are discharged without liquidation. Certain unsecured debts cannot be discharged under Chapter 7 bankruptcy.
The Chapter 13 Bankruptcy Option
In a Chapter 13 bankruptcy, the bankruptcy court administers a full or partial repayment plan of what the debtor owes.
The debtor must first submits a plan to the court; if that plan is approved, the bankruptcy trustee collects monthly payments from the debtor. The trustee is in charge of paying off creditors according to the terms of the approved plan.
This repayment plan can take anywhere from 3-5 years, after which-if all payments have been made on schedule according to the plan-any remaining unsecured debt that qualifies for discharge may be discharged.
Which type of bankruptcy protection can I file for?
Debtors are qualified for Chapter 7 bankruptcy filing using the Chapter 7 means test.
This test begins by comparing your income with the median income in your state. If your income is below your state’s median, you are allowed to file for Chapter 7 bankruptcy.
If your income exceeds the median, you must go through further calculations of your income and allowable expenses in order to determine whether you can file for Chapter 7 bankruptcy.
Debtors who don’t qualify for Chapter 7 will often file for bankruptcy under Chapter 13.
It is important to keep in mind that if you file for Chapter 13 bankruptcy, you must have a regular income so you can create a realistic repayment plan and can stick to the payments you must give the trustee each month.
Which is better for me: Chapter 7 or Chapter 13?
Which bankruptcy option is right for you-or whether bankruptcy is right for you at all-depends on your specific circumstances. And attorney can help you figure that out.
Chapter 7 bankruptcy is often the better option for those whose debts, such as credit card debt and medical bills, are mostly unsecured.
So, if you don’t have many assets, your income is below the median, and the majority of your debts are not secured, Chapter 7 bankruptcy might be your best option.
On the other hand, Chapter 13 bankruptcy might be the better choice for debtors who have a steady, reliable income and a significant amount of non-exempt property that they don’t wish to lose.
Let a bankruptcy attorney in your area look over your finances and counsel you regarding the bankruptcy plan that might work well for you.