Filing bankruptcy is an important decision; it can be the first step in resolving your debt problems so that you can focus on recovering and rebuilding your finances. We understand that you may feel nervous about meeting with an attorney to discuss bankruptcy options. We also understand that you may have doubts about whether bankruptcy is right for you, especially if you are considering a Chapter 7 bankruptcy case.
Many people have heard negative stories about Chapter 7, so I am writing this article to dispel those myths. Chapter 7 Bankruptcy has helped millions of people resolve their debt problems, and it could help you, too.
What is the Difference Between Chapter 13 and Chapter 7 Bankruptcy?
Deciding what chapter of bankruptcy you should file is another important decision to make on your journey to debt freedom. Our attorneys will help you determine what chapter of bankruptcy is best for you to file based on your financial situation. The main difference between the two chapters of bankruptcy is the presence of a bankruptcy plan. Both chapters protect debtors from creditor harassment and allow debtors to discharge unsecured debt that they are unable to pay; however, a Chapter 13 bankruptcy requires that the debtor file a bankruptcy plan detailing how the debtor will repay his or her creditors.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy case, also known as a wage earners plan, requires that the debtor have sufficient income to fund a bankruptcy plan. The debtor will repay his or her unsecured creditors a percentage of the amount owed. The remaining balance owed at the end of the bankruptcy plan will be discharged. Secured debt can be repaid through the Chapter 13 plan, sometimes even at a lower interest rate. This allows debtors to reorganize their debts into a manageable monthly payment.
The typical bankruptcy plan is 36 or 60 months; therefore, it can take up to five years to complete a Chapter 13 case.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy case does not require the debtor to propose a bankruptcy plan. Although this chapter of bankruptcy is known as liquidation, most debtors do not lose any property when they file thanks to the protection of bankruptcy exemptions. A typical no-asset Chapter 7 case is completed in four to six months from the date of filing.
In order to file a Chapter 7 case and receive a discharge, you must meet the income requirements of the Means Test. The Means Test compares the debtor’s income to average income of other debtors within the same geographical area. If your income exceeds the median income, you will not be eligible to receive a discharge under Chapter 7. The best way to determine if you qualify for a Chapter 7 case is to meet with an experienced bankruptcy attorney. Online calculators for the Means Test can provide a decent approximation, but they may not be entirely accurate and they don’t take into consideration the many income deductions that are available. An attorney with bankruptcy experience can use these deductions to help debtors qualify for a Chapter 7 case.
Who Should File a Chapter 7 Bankruptcy?
Chapter 7 cases are designed for debtors who cannot afford to pay his or her debts while maintaining a basic standard of living. Individuals with limited income who need to discharge substantial unsecured debt can benefit from a bankruptcy under this chapter. Before deciding to file a Chapter 7 bankruptcy case, you should consult with an attorney to make sure that your assets will be protected fully.
If you are in a situation where you are faced with overwhelming debt, it is time to take action so you can get your financial situation back on track. For most people, the first action step is research. We have a great starting point for this research; if you are interested you can download it for free: Debt Solutions 101 eBook. It provides information about the bankruptcy process including the different chapters of bankruptcy and eligibility requirements. If you have any questions during your research, we are always here to help.