Chapter 7 or Chapter 13: What Type of Bankruptcy Is Best for Me?
Coming to the decision that you need to file for bankruptcy is a difficult one, but if you've made it, you deserve some recognition. However, simply knowing that bankruptcy can help you with your overwhelming burden of debt is only half of it. You also need to know what type of bankruptcy you need to file. If you're an individual and not a business or corporation, or anything particularly unique, you probably have two choices: Chapter 7 and Chapter 13. So which one is right for you?
Chapter 7: Total Liquidation
When your burden of debt seems truly inescapable, Chapter 7 bankruptcy is likely the form you should consider. It is generally reserved only for people that have no other choice than bankruptcy, and so it is not granted to just anyone. In order to use Chapter 7, you must pass the means test, which essentially compares your average annual earnings to that of other people in your state; if you make more than the mean salary in your state, you will not be permitted to use Chapter 7 bankruptcy and have failed the means test.
If you do pass the means test, you will see much of your debt entirely discharged. Depending on your unique circumstance, all of your unsecured and secured debt could be discharged. Although, you must be aware that it is common for collateral property, such as homes, cars, and other valuable assets, to be collected by creditors in exchange for total debt discharge. Do not file for Chapter 7 without first checking with a lawyer to see how much you could possibly lose.
Chapter 13: Gradual Repayment
The process of Chapter 13 bankruptcy is noticeably different from Chapter 7, as it can benefit both you and creditors through some leniency. Rather than having the majority or all of your debt completely erased, it will be reduced by a certain percentage. Whatever is left after the reduction will need to be repaid over the course of three to five years. If you make an honest effort to complete your repayments but still fail to repay some of it at the end of the repayment plan, the leftovers will typically be discharged.
Since you are not completely dropping your debts and still repaying certain amounts to creditors, your collateral property will likely be protected from collection. On average, people who successfully use Chapter 13 bankruptcy keep more of their personal property than people who use Chapter 7. You should consider this possibility if you are in debt but believe with some useful restructuring you could manage your debt and get out.
Secured Debts & Automatic Stays
Between Chapter 13 and Chapter 7 bankruptcies, there are many dissimilarities but also a few similarities. Out of the things that are the same, the two most noticeable are secured debts and automatic stays.
In both forms of bankruptcy, you are likely to come across secured debts. Any debt that is secured will typically be unalterable during bankruptcy, meaning it cannot be discharged or diminished. This is not always the case, as previously mentioned, but for the most part, only unsecured debts will be eliminated. Any debt not eliminated needs to be repaid or compensated through collateral property.
Automatic stays are court orders that are triggered the moment you file for bankruptcy and that block you from creditors and any form of harassment they may have been using against you previously, as well as locking your finances away from them. If you were having your wages garnished by a creditor, the garnishment would be frozen while your bankruptcy progresses; ideally, the garnishment will be removed through bankruptcy. If you were receiving calls or letters from creditors, they would have to cease and desist that behavior and leave you completely alone until the bankruptcy concludes.
Making the Right Decision with Confidence
If you have a strong sense of bankruptcy law, know the benefits, and can look beyond the myths surrounding it, you should still seek professional counsel before you begin, just to be safe. You can contact a Murrieta bankruptcy attorney from Singleton Smith Law Offices for the assistance you require. With our help, you can be confident that the bankruptcy choice you make is right for you, even if that means not using bankruptcy at all but exploring other debt resolution options.
Call (951) 779-1610and we can start you off with a free initial consultation.