If you are ready to declare bankruptcy to start settling your debts, deciding which kind of bankruptcy to file for can be a challenging decision. When filing for bankruptcy for an individual, you can either decide on Chapter 7 bankruptcy or Chapter 13 bankruptcy.
- Chapter 7 bankruptcy: This is the most common type of consumer bankruptcy. When you file, you receive an “automatic stay” which stops creditors from trying to collect more debt from you. Chapter 7 bankruptcy is a faster acting plan, designed to eliminate dischargeable debt like credit card debt and medical bills. After these debts are gone, room is made to pay off non-dischargeable debts, like student loans and child support payments. It is favorable to those who earn less than the median income in their region. In Chapter 7 bankruptcy, creditors will attempt to sell your “non-exempt” property. A Washington, D.C. bankruptcy attorney can help you decide what property is exempt.
- Chapter 13 bankruptcy: Designed for people with more steady income, it spreads out debt over a longer time frame, lasting 3-5 years. Helpful for those who have fallen behind on mortgage or car payments, but have the ability to pay a significant portion of their debt. The automatic stay applies to Chapter 13 bankruptcy as well.
How Do You Know Which One Is Right for You?
- What is your income? There is an income cutoff for filing Chapter 7 bankruptcy. If you make above a certain amount, you have to file for Chapter 13. One of the determining factors of filing for Chapter 7 is not having a realistic ability to pay off most of your debt in the near future. Chapter 13 is a redesigning of your debt repayment plan, while Chapter 7 is more of a debt liquidation strategy.
Is All My Property at Stake?
There is exempt, and non-exempt property. In Chapter 7 bankruptcy, what you can keep and what you have to give up is subject to state exemption laws. In many cases, you will still be able to keep your home from foreclosure. In Chapter 13 bankruptcy, there is more of a chance that you will be able to keep all of your assets.
Bankruptcy laws can be complicated, and deciding how to repay your debt is a life-changing issue. Bankruptcy attorney Kevin D. Judd firm has the knowledge to help you pick to best debt-repayment option for your situation.