A lot of people would choose filing a Chapter 7 bankruptcy over a Chapter 13 if they were given the choice. However, not everyone has the ability to choose between a Chapter 7 and a Chapter 13
bankruptcy. What sets the two bankruptcies apart? With a Chapter 7 bankruptcy, the bankruptcy trustee cancels all or the majority of your debts, meaning they are literally wiped out and you are no longer responsible for paying them. Such debts which can be discharged in a Chapter 7 bankruptcy include: medical bills, certain taxes, credit card debt, utility bills, payday loans and personal loans.
Not all debts can be included in a Chapter 7 bankruptcy, those debts that cannot be discharged in a Chapter 7 include: child support, alimony or spousal support, student loans, court-ordered fines, victim restitution, and recent taxes.
A Chapter 13 is different than a Chapter 7, for it involves restructuring the person's debt into an affordable monthly repayment plan that is paid off over 3 to 5 years. The debtor may wind up paying only a fraction of that debt, or they may wind up paying it all off. How much they pay and for how long will depend upon their debt load, the types of debts, and their monthly disposable income.
Do I qualify for a Chapter 7?
Since a significant amount of unsecured debts are discharged or wiped out in a Chapter 7, many people would prefer to file a Chapter 7 over a 13; however, not everyone qualifies to file a Chapter 7 bankruptcy. In order for someone to find out if they qualify for a Chapter 7 bankruptcy, they must first take what is called the bankruptcy
means test. This test will compare the debtor's income and their household size, to the median income of the state where they live. If their income falls below the median income for the state for their household size, then they automatically qualify for a Chapter 7. On the other hand, if the person's income is too high, they will be diverted to filing a Chapter 13 instead.
In essence, the Chapter 7 bankruptcy is reserved for those debtors who really need it. Eligible filers are typically unemployed, or underemployed, or working as an independent contractor with extremely sporadic income. In contrast, those who don't qualify for a Chapter 7 bankruptcy typically have a good job, or a steady source of income. Their income is generally predictable, steady, and they earn a decent living.
Chapter 7 Bankruptcy Discharge
The process from start to finish with a Chapter 7 bankruptcy is relatively quick; it can usually be completed within 4 to 6 months after filing. By the time the debtor's bankruptcy is discharged, all of their qualifying debts are wiped out, and they can start out fresh with a clean slate, which can be a remarkable feeling.
In order to determine which bankruptcy you qualify for, it will come down to your monthly income and what types of debts you carry. For example, if you're unemployed and you have a significant amount of credit card or medical debt, then the Chapter 7 bankruptcy would be your best option. On the other hand, if you are a business professional or a doctor, or a lawyer, or a government employee with a good job and too much debt, you will probably have no choice but to file a Chapter 13. Filing a Chapter 13 is not a bad thing; it too can have many benefits that outweigh any negatives.
To find out more about qualifying for bankruptcy, please contact attorney Hensel at the Hensel Law Office, PLLC today!