If your debt is so overwhelming that you can't possibly repay it all,
you may be considering bankruptcy to give yourself a fresh and legal financial
start. The Bankruptcy Reform Act of 2005 gives you the right to file for
elimination of debts and protection from creditors if you meet certain
qualifications. However, you need to determine
which type is most appropriate for your situation.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy discharges your eligible debts, but your income can't
exceed the median in your state for you to qualify. This is called the
means test. If you meet this qualification, you need to complete several
forms that list your current income, living expenses, property, and debt.
The forms also require you to describe any property you own or that you
have sold or given away in the past year. You will need to explain how
you have spent money over the past 12 months as well.
If you qualify for Chapter 7, you can eliminate most consumer, medical,
and other types of debt. The federal government
doesn't allow for the discharge of certain taxes, child support, and student loans. After your filing and before you receive
a discharge, you must complete credit counseling with a licensed counselor.
From start to finish, you can typically complete a Chapter 7 bankruptcy
in three to six months. It will remain on your credit file as a public
record for 10 years.
Chapter 13 Bankruptcy
If you don't qualify for Chapter 7 because your household income is
too high, or you prefer not to eliminate debts, you might qualify for
bankruptcy protection under Chapter 13. With this type of filing, you
create a repayment plan that gives you more time to pay your creditors.
However, a bankruptcy judge must approve the plan and he or she is the
one to disburse payments to your creditors.
With Chapter 13 bankruptcy, the judge will ensure that priority debts like
tax bills, employee wages, and child support receive payment first. Creditors
holding secured debts, such as your mortgage or car lender, get next priority.
The remaining amount goes to pay your unsecured debt like medical and
credit card bills. You could receive a full or partial discharge of your
bankruptcy depending on the funds you have available for a repayment plan.
Like Chapter 7, you will also need to complete a requirement for pre and
post-filing credit counseling. This type of bankruptcy typically remains
on your credit report for seven years.
We help people who cannot pay their debts. Please
contact us for a bankruptcy consultation today.