What Are My Options For Personal Bankruptcy?

Post by Resolve Law Group on 01/28/2024

What Are My Options For Personal Bankruptcy?

Many people hit points in their lives where managing debt becomes overwhelming, and filing for personal bankruptcy may be the best legal option they have. Individuals can file two types of personal bankruptcy under Chapter 7 and Chapter 13 bankruptcy. Each type has its eligibility criteria, benefits, and consequences; the choice between them depends on an individual's financial situation and goals.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often called "liquidation bankruptcy," is designed for individuals with limited income and significant unsecured debts such as credit card debt, medical bills, and personal loans. The following are some of the important factors in this type of personal bankruptcy:

  • Eligibility: To qualify for Chapter 7 bankruptcy, individuals must pass the means test, which assesses their income, expenses, and ability to repay debts. If their income falls below the state median or if they have insufficient disposable income to pay off debts, they may be eligible.
  • Asset Liquidation: In a Chapter 7 case, a court-appointed trustee may sell non-exempt assets to repay creditors. However, many assets, such as necessary household items and certain retirement accounts, are exempt from liquidation.
  • Debt Discharge: The primary benefit of Chapter 7 bankruptcy is the discharge of unsecured debts. Once the bankruptcy is finalized, most qualifying debts are wiped out, providing a fresh financial start.
  • Impact on Credit: Chapter 7 bankruptcy remains on an individual's credit report for ten years, which can negatively affect their credit score and ability to obtain credit in the short term.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is often referred to as "reorganization bankruptcy" and is for individuals with a regular income who want to create a manageable repayment plan to address their debts. Here are some key features of Chapter 13 bankruptcy:

  • Eligibility: Chapter 13 bankruptcy does not have strict income limits, but individuals must have sufficient income to propose a feasible repayment plan. It is often the best choice for people with assets they want to protect or who are not eligible for Chapter 7.
  • Repayment Plan: Under Chapter 13, debtors propose a repayment plan to the court, which typically spans three to five years. The plan must prioritize secured debts, like mortgages or car loans, and repay a portion of unsecured debts.
  • Asset Retention: Debtors can retain their assets while making regular payments under the court-approved plan. This can be advantageous for those with valuable property they wish to protect.
  • Debt Discharge: Upon completing the repayment plan, remaining unsecured debts are typically discharged, offering a fresh financial start.
  • Impact on Credit: Chapter 13 bankruptcy stays on a credit report for seven years, making it less damaging to credit than Chapter 7.

Contact A Bankruptcy Law Firm

Bankruptcy is a significant decision, and understanding the types and their implications is crucial for making an informed choice to regain financial stability. If you are considering filing for bankruptcy, a skilled bankruptcy lawyer can evaluate your situation and advise which type would be the best for your situation.

Thank you to our friends at Eric Lindh Foster Law, LLC for their insight into personal bankruptcy options.

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