Should I File for Chapter 7 Bankruptcy or Chapter 13?
If you’re facing insurmountable debt and feel as if you have nowhere left to turn, there’s probably one word that comes to mind—bankruptcy. Although the word has a certain taboo quality to it, bankruptcy can actually be a very effective way to help individuals and couples tackle serious debt issues. When creditors are knocking at your door and pressuring you to pay up, you need to have a plan of action. Rather than letting things continue as they are, or allowing them to escalate, it’s important to weigh the pros and cons of bankruptcy and discover what type of bankruptcy will work best for you.
The most common forms of bankruptcy, Chapter 7 and Chapter 13, can be extremely helpful in eliminating debts, but each offers a different type of debt resolution. Depending on your debts, your personal preferences, and your financial needs, one of these bankruptcy methods might be better than the other.
Are you ready to file bankruptcy? Find out if you should file Chapter 7 or Chapter 13.
About Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most common type of bankruptcy because it successfully eliminates all unsecured debt and allows individuals and families to start with a clean slate. Also referred to as liquidation bankruptcy or straight bankruptcy, Chapter 7 allows consumers to liquidate some of their assets in order to pay off what they owe. The liquidated assets may include properties, including your house, as well as cars, land, and other valuables.
In order to file Chapter 7 bankruptcy, consumers must first pass the means test, which measures an individual’s average income against the state average. If your income, (or your joint income, if you are married), is below the median state income, you can file a Chapter 7 bankruptcy petition. If you do not pass the means test because your income is above the median, Chapter 13 bankruptcy may be the better option for you.
About Chapter 13 Bankruptcy
Several individuals and couples who do not qualify for Chapter 7 bankruptcy end up filing for Chapter 13 instead. Even though Chapter 13 bankruptcy does not resolve all of your debt, it can be an extremely effective way to help you create a solid financial plan for the future.
Chapter 13 bankruptcy is also referred to as reorganization bankruptcy because it works on the assumption that by reorganizing your debt, you can overcome it. Through Chapter 13 bankruptcy, consumers can create a new repayment plan to pay off their debts over a limited time span (3-5 years). Once the repayment plan has been approved and the set time span has concluded, what remains of those debts will be forgiven.
Which Is Best For You?
There are pros and cons to each form of bankruptcy, so choosing the best course of action for you depends on your own preferences, your income, and your debt. People who earn less and are unable to repay their debt in any form could benefit more from Chapter 7 bankruptcy, which will leave their debts completely forgiven. However, those who wish to retain their house and other properties might lean more towards Chapter 13. Whichever choice you’re leaning towards, make sure you take the time to seek a professional opinion.
If you are considering bankruptcy as a form of debt resolution, our firm is here to help. Contact Singleton Smith Law Offices, Inc. to discuss your case with our Murrieta bankruptcy attorneys.