When considering bankruptcy, understanding the different types of bankruptcy is crucial. Each type has certain requirements, implications, and benefits, and they require careful consideration when deciding to file for bankruptcy. Two of the most common types of bankruptcy, Chapter 7 and Chapter 13, can have many benefits for those struggling with debt. By discussing your situation with an experienced bankruptcy lawyer, you can make an informed decision as you move towards a better financial future.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, often called “liquidation bankruptcy,” involves the sale of a debtor’s non-exempt assets by a trustee. The proceeds from the sale are used to pay off creditors. This process can discharge many types of unsecured debts, such as credit card balances and medical bills. However, certain debts, like student loans and alimony, typically cannot be discharged.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, known as “reorganization bankruptcy,” allows individuals with a regular income to develop a plan to repay all or part of their debts. Debtors propose a repayment plan that lasts three to five years, during which they make monthly payments to a trustee who distributes the funds to creditors. This option can help prevent foreclosure and allow debtors to keep their property while catching up on missed payments. With the assistance of a dedicated lawyer, an effective repayment plan can be developed to manage debt.
Who Qualifies For Chapter 7 Bankruptcy?
Eligibility for Chapter 7 bankruptcy is determined by a means test, which compares your income to the median income of your state. If your income is below the median, you automatically qualify. If it’s above the median, additional calculations are performed to determine if you have enough disposable income to repay your debts. If you do, you may not qualify for Chapter 7 but could still file for Chapter 13. An experienced attorney can help you with the qualification process and determine which type of bankruptcy you are eligible for.
Who Qualifies For Chapter 13 Bankruptcy?
To qualify for Chapter 13 bankruptcy, you must have a regular income and your unsecured debts must be less than $419,275, while secured debts must be less than $1,257,850. These amounts are adjusted periodically to reflect changes in the consumer price index. Chapter 13 is typically chosen by those who have valuable assets they want to keep or who have income too high to qualify for Chapter 7.
How Does Filing Affect Your Credit?
Both Chapter 7 and Chapter 13 bankruptcies will impact your credit score, but there are differences in how long they remain on your credit report. Chapter 7 bankruptcy stays on your credit report for ten years from the filing date, while Chapter 13 bankruptcy stays for seven years. Despite the initial impact, bankruptcy can be a step toward rebuilding your financial health, as it allows you to eliminate or reduce debt and make a fresh start. If you are struggling with debt, attorneys such as our friends at Resolve Law Group recommend comparing the implications and benefits of both Chapter 7 and Chapter 13 bankruptcy to determine which is the best path forward for you.
Discuss Your Case With A Lawyer Today
Choosing between Chapter 7 and Chapter 13 depends on your individual circumstances, such as your income, the types of debts you have, and whether you have assets you want to protect. Whether you need a fresh start through liquidation or a structured repayment plan, knowing your options will help you make an informed choice. Regardless of your situation and needs, it is important to take the time to consider your options and receive professional legal assistance from a qualified attorney throughout the process of filing for bankruptcy.