When to File for Chapter 7 Bankruptcy Instead of Chapter 13
There’s a reason Chapter 7 is the most common type of personal bankruptcy: It’s a lot faster than Chapter 13, it doesn’t require filers to pay back a portion of debt and, contrary to popular myth, it allows most people to keep their possessions.
So what’s the biggest drawback to Chapter 7? Not everyone will qualify for it.
If you’re buried in unsecured debts like medical debt, credit card debt, personal loans or wage garnishments, chances are you’re a good candidate for Chapter 7 bankruptcy.
In as little as three to six months, a Chapter 7 filing can entirely eliminate most debts, with the exception of nondischargeable debts like student loans, mortgages and child support.
Chapter 13 bankruptcy, on the other hand, requires filers to make payments on their debts over a three- to five-year period. Debts will only be discharged after the payment plan is honored.
While Chapter 7 bankruptcy won’t protect your assets as thoroughly as Chapter 13 bankruptcy, the reality is that most filers won’t have to give up any property. In fact, the majority of folks who file for Chapter 7 don’t have much property to begin with thanks to years of struggling under crushing debt, and often rent a home or own a used vehicle outright.
In most cases, you’ll be able to hold onto all or most of your assets during your bankruptcy case, unless you agreed to use the items as collateral for a loan, such as your home or car.
The good news is that once you file for bankruptcy of any type, creditors are automatically prohibited from taking further legal action against you – or from contacting you at all, for that matter.
How do you know if you qualify for Chapter 7 bankruptcy? An evaluation method known as the means test determines eligibility by examining income; you won’t qualify if you earn more than your state’s median income level over a six-month period, or if your disposable income is projected to be more than $10K over the next five years. (If you’re unable to pass the means test, you will probably be better served by a Chapter 13 bankruptcy anyway.)
If it all sounds a little confusing, know that a knowledgeable bankruptcy attorney can establish whether Chapter 7 bankruptcy is right for you and help you understand risks associated with filing, such as which – if any – of your assets may be nonexempt.
If you’re tired of suffocating under the burden of debt, bankruptcy can be the fastest and most effective way to find a fresh start. Wondering if you could wipe out debt with Chapter 7? Speak with an experienced DebtStoppers bankruptcy lawyer at no cost when you schedule your free personal debt consultation today.