Should I File for Chapter 7 or Chapter 13 Bankruptcy?
Many individuals who find themselves in serious debt never consider bankruptcy because they think a filing will make it impossible to ever rent a place (let alone buy one), be accepted for a new job, or start a new line of credit. While it is true that a bankruptcy filing has serious impacts on your credit rating, for some people, the fresh start associated with a bankruptcy will actually lead to improved credit in the long term (ten years or more). Of course, there is no-one-size-fits-all plan, but with several different forms (or “chapters”) of bankruptcy, chances are there is one that best fits your debt situation. In this article, we’ll look at Chapter 7 bankruptcy and examine its advantages and how it compares to Chapter 13.
Why Chapter 7?
For an individual, Chapter 7 may be the best option as it often allows the filer to keep most of their property while discharging the vast majority of their debt. Another advantage to Chapter 7 is how quickly the filing can be processed–your case can be opened and closed in as little as three months in some cases. After this filing, you’ll come out the other end debt-free (with the exception of your mortgage, car payments, and special kinds of debt like student loans and unpaid child support). It is possible to lose some of your property during a Chapter 7 filing, but most individuals do not, and bankruptcy courts will allow you to keep necessities, though you may have to give up certain luxuries.
Advantages of Chapter 7 over Chapter 13 filing
What distinguishes Chapter 7 from Chapter 13 bankruptcy, primarily, is that Chapter 13 includes a repayment plan. If your income is sufficient, a Chapter 13 repayment plan will reorganize your debt, but you will still be required to pay back a large portion. The problem with these three to five year repayment plans is that most filers fail to keep up with even the reorganized debt–which is no surprise, after all, if you could afford to pay your debts, you probably wouldn’t be filing for bankruptcy to begin with. If you fail to pay down your Chapter 13 debt reorganization, you run the risk of having none of your debt discharged.
Are You Eligible for a Chapter 7 Bankruptcy?
Not everyone is eligible to file for Chapter 7. To determine eligibility, a bankruptcy court will apply a “means test” to your circumstances. The primary factor in this test is whether or not your income is low enough to qualify. This does not mean you have to be absolutely penniless, though; rather, the means test determines if there is a realistic chance that you can pay your existing debt. The higher your disposable income, the less likely you’ll qualify for Chapter 7.
If you’re debt is now out of control–whether because of a loss of income, medical bills, or any other reason–it’s time to start thinking about filing for Chapter 7. Contact a local Chapter 7 bankruptcy Las Vegas expert to get means tested and find out if this is the best option to restart your financial life.