When you are considering filing for bankruptcy, it’s essential to
consider all available options in order to determine which is right for
you. While Chapter 7 bankruptcy is the most commonly used form of bankruptcy,
Chapter 13 may be a better choice for individuals capable of making payments
towards their debts. Regardless of your situation, understanding the drawbacks
and advantages of each option may help you make a better, more informed decision.
Chapter 7 Bankruptcy
Also called liquidation bankruptcy, Chapter 7 can eliminate all unsecured
debts, by liquidating some of your assets, allowing you to start fresh.
Unsecured debts that may be wiped out under Chapter 7 include credit card
debt, medical bills, personal loans, and student loans. However, in order
to qualify for Chapter 7, individuals must pass the means test, which
evaluates your income against your state’s average income. Those
below the median income for their state will be eligible to file.
Chapter 13 Bankruptcy
If you are cable to make monthly payments towards your debt, Chapter 13
bankruptcy may be your best bet. Chapter 13 does not alleviate all debt,
but instead reorganizes significant debts into a singular figure and allocates
a set payment. They payment plan may span over a 3 to 5-year plan, depending
on the amount of debt and the sum the individual is capable of paying.
In many situations, those who fail the means test may choose Chapter 13
bankruptcy as an alternative.
While those who file Chapter 7 bankruptcy may preserve certain assets,
it isn’t called liquidation bankruptcy without reason. Chapter 13,
on the other hand, will allow you to retain your assets without risking
losing your home or other important possessions.
There is a restriction on who can file Chapter 7, based on the means test,
whereas Chapter 13 does not have a set income cap for individuals to file.
However, Chapter 13 does set a limit on the amount of debt owed, be it
secured or unsecured.
The timeline for completion of each bankruptcy also varies greatly, with
Chapter 7 taking roughly 3-5 months, and Chapter 13 lasting over 3-5 years.
Because Chapter 13 relieves debt through a payment plan, the process lasts
as long as the chosen plan designates, which is a maximum of 5 years.
In short, Chapter 7 bankruptcy is generally a better fit for people who
need a fresh start and do not have the financial means to settle their
debts any other way. Chapter 13 bankruptcy, on the other hand, is usually
more beneficial for individuals who have hefty debts, (perhaps are behind
on mortgage or car payments), and need to reconfigure a way to make manageable payments.
If you are still unsure about which bankruptcy or debt relief method is
best for your situation, or you wish to begin filing bankruptcy today, contact Owenby Law, P.A.