Which Should You File: Chapter 7 or Chapter 13 Bankruptcy
There are many different types of bankruptcy and debt relief options available for people who are struggling with debt. Determining which choice is the right one depends on your personal situation, the amount of debt you owe, the type of assets you have and how much income you receive. That is why it is always best to review your financial situation and consider all your available options with an expert adviser and attorney before moving forward with bankruptcy.
But once you have decided that bankruptcy is the right solution, you will then need to decide which type of bankruptcy is best for your financial situation. While there are several types of bankruptcy options available, the most common ones filed are Chapter 7 and Chapter 13. Here is how you can determine which bankruptcy option is right for you:
Chapter 7 Bankruptcy
Type: This type of bankruptcy involves liquidation. A Chapter 7 bankruptcy will discharge most types of unsecured debt. The appointed trustee will sell any nonexempt property to repay your creditors.
Eligibility: Both individuals and business entities can file for Chapter 7. To be eligible, you must either pass the means test or have an income that is less than the median of your state.
Income: A Chapter 7 bankruptcy requires your disposable income to be low enough to pass the means test.
Property: This type of bankruptcy can require significant equity or assets not exempt by law to be sold to satisfy some debts.
Time Frame: A typical Chapter 7 bankruptcy can take 3-4 months to complete.
Advantages: This option allows you to quickly discharge your debt in order to get a fresh start.
Disadvantages: Besides the risk of having your nonexempt property sold by your trustee, Chapter 7 bankruptcy does not provide a way to catch up on missed payments to avoid foreclosure or repossession.
Chapter 13 Bankruptcy
Type: This type of bankruptcy involves reorganization. A Chapter 13 bankruptcy requires you to repay some creditors in full and some creditors in part through a repayment plan.
Eligibility: Only individuals and sole proprietors can file for Chapter 13. To be eligible, you must have unsecured debt below $383,185 and secured debt below $1,149,525.
Income: A Chapter 13 requires you to have a regular income for the monthly payment.
Property: This type of bankruptcy requires no property to be liquidated.
Time Frame: A typical Chapter 13 bankruptcy can last 3-5 years, depending on your income and repayment plan.
Advantages: This option allows you to keep your property, catch up on missed payments like your mortgage and car.
Disadvantages: Besides having to pay back a portion of your unsecured debts, Chapter 13 bankruptcy can require monthly payments that last for years.
At The Metka Law Firm, our goal is to make it easier for you to pay off your debt and limit the damage done to your credit score during the process. Our attorneys will provide you the guidance and support you need as you get your financial life back on track. To learn how we can help you lessen and even eliminate your debt, call us or schedule your free initial consultation today.