What Type of Bankruptcy Is Best For Me?

Personal bankruptcy, a legal process, has two options for people wanting to get rid of their secured and unsecured debt.

Chapter 7 Doesn’t Require Repaying Creditors

Chapter 7 bankruptcy is also known as liquidation bankruptcy. This means that individuals aren’t required to repay creditors. The chapter is for individuals with inadequate income do to job loss or lack of stable income. Typically, chapter 7 takes care of large unsecured debt rather than secured and unsecured debt. The process for chapter 7 is quick. For instance, it’s possible that people can file and have their debts discharged, or eliminated, in 3 to 6 months. Unfortunately, individuals with any non-exempt property may have to turn it over to bankruptcy trustees for sell. The funds will go to the creditors. However, chapter 7 protects against wage garnishments and lawsuits with an automatic stay.

Chapter 13 Is For People Trying To Save Property

Chapter 13, or wage earner’s bankruptcy, is for individuals with regular income and the ability to repay. People set up repayment plans and make monthly payments to bankruptcy trustees who distribute the funds to creditors. The entire repayment process can take 3 to 5 years to complete depending on the length of their plans. Once the money is repaid, all secured and unsecured debt is discharged. Also, chapter 13 allows people facing foreclosure or the loss of their cars to retain their property through an automatic stay.

The Bankruptcy Means Test Determines If Individuals Are Eligible For Chapter 7

The U.S. Bankruptcy Court determines whether people are eligible for chapter 7 through a means test. The test requires people to compare their currently monthly income after all monthly debts are paid. The individuals take the average of income over six months before they plan to file bankruptcy and compare it to their state’s median income for their household size. If their disposable income is under the state’s median they are eligible for chapter 7. However, if their disposable income is over the state’s median then they fail the means test, but are eligible for chapter 13.

Seek Legal Assistance about What Type of Bankruptcy Is Best

Only bankruptcy lawyers can truly determine which type of bankruptcy is best. When people meet with the lawyers, they’ll go over bankruptcy and discuss their options. Also, they will go through the means test and make sure that people who fail the means test are really eligible for chapter 13 and not chapter 7.

Think Bankruptcy Might Be for You?