If your debt appears to be insurmountable and you have exhausted all potential courses to get your finances back on track, bankruptcy may be your last option to either eliminate or reduce your debt. There are two main types of bankruptcy: Chapter 7 and Chapter 13. The following blog post is an overview of Chapter 7 and Chapter 13 bankruptcy, and which one is best for your situation.
Chapter 7 Bankruptcy
Commonly known as “liquidation bankruptcy,” which discharges (i.e., erases) qualifying debts, including credit card balances, personal loans, utility bills, and medical expenses. However, in some circumstances, you may need to surrender assets, such as property or cash.
Once you file for Chapter 7 bankruptcy, the court will issue an “automatic stay,” which stops your creditors from collection efforts. A trustee—a court-appointed administrator who represents your estate and manages your case—is tasked with reviewing your case to make sure you have included all your assets and liabilities and determining whether you have any assets beyond those protected by statute.
In order to qualify for Chapter 7 bankruptcy, your income must be below a certain median income level (or the bulk of your debt must be non-consumer debt). A Chapter 7 case, when appropriate, is generally a faster, less expensive way to provide you with a fresh start and allow you to move forward with your life, without staggering debt obligations.
Chapter 13 Bankruptcy
If you do not qualify for Chapter 7, you may be a candidate to file for a Chapter 13 bankruptcy instead. A Chapter 13 case requires you to pay back a portion of your unsecured debt based on your income through a three- to five-year reorganization plan to pay your debt. After the conclusion of the Plan, the rest of your unsecured debt gets discharged and you then obtain a fresh start.
In some circumstances, you can structure a Chapter 13 Plan to stop the foreclosure of a delinquent mortgage by paying off over time late and overdue payments, known as an arrearage. A successful completion of a Chapter 13 Plan may allow you to keep your home.
Similar to Chapter 7, the court will issue an automatic stay to stop creditors from collecting from you until you receive your discharge (or your case gets dismissed). This will give you an opportunity to catch up on past-due expenses, such as mortgage and car payments.
Let Our Firm Decide Which Bankruptcy is Best for You
At Boatman Law LLC, our legal team can thoroughly examine your financial situation and determine whether Chapter 7 or Chapter 13 bankruptcy is the best option. Let us help you overcome your debt and get a fresh start to your finances.