Which Type of Bankruptcy is Right for Your Situation?

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.