Losing control of your financial health is not pleasant, but it is a reality that many people face each day. As of March 2017, an estimated 770,901 non-business owners filed bankruptcy. With this number in mind, you should not be embarrassed about your need to file bankruptcy.
Whether you have lost income due to layoffs or an injury or you have accrued an excessive amount of debt that you are unable to afford, bankruptcy could be the right option for you.
Unfortunately, most consumers are not familiar with the different types of bankruptcy filings available. Both chapter 7 and chapter 13 offer their own pros and cons, but you need to know which you qualify for before filing. With this guide and the help of your bankruptcy attorney, you will learn the differences between chapter 7 and chapter 13 bankruptcy.
With chapter 7, all of your debts are wiped out. This is known as a liquidation type of bankruptcy. Chapter 7 is capable of clearing unsecured debts, such as credit cards and medical bills you are unable to pay.
Of course, not everyone will qualify for chapter 7 bankruptcy. You must pass a means test, showing the courts you do not have the financial means to pay for your debt.
If you believe chapter 7 is right for your needs, schedule a consultation with your attorney to determine if you will qualify. You will need to bring the following to your consultation:
- Bill statements for credit cards, loans and medical bills
- Income statements
- Proof of your basic living expenses, such as mortgage or rent, electricity, phone, transportation costs and insurance
- Tax returns for the last two years
Your attorney will use these documents to calculate whether you have the means to pay for your debt. Living expenses are deducted from an average of your income for the last 6 months.
If you do not have enough disposable income to pay your debts, you will pass the means test and be able to file chapter 7 bankruptcy.
Depending on your specific state's laws, you may be able to file exceptions to allow you to keep certain property. In most cases, you will be allowed to file chapter 7 while protecting the equity in your home, your vehicle and money in your bank account.
If you are unable to pass the means test, but you are still overwhelmed with basic living expenses and debt, your attorney may suggest filing chapter 13 bankruptcy.
Chapter 13 is basically a reorganization or restructuring of your debts. You will be required to pay a portion of these debts each month, but the bankruptcy will stop harassments from creditors and accruing interest charges and late fees.
Using your income statements, your attorney will negotiate lower payoffs and payments with creditors. These lower payments will help you pay down the total balances of your debts. Once the bankruptcy has been finalized, you will begin making one payment to your trust, which will then be dispersed to each creditor.
In most cases, the payments will be made over a period of 3 to 5 years. Stretching the payments over the course of 5 years will allow you to make smaller payments each month, which can be helpful while budgeting.
Again, as with chapter 7, exemptions are possible if you are filing chapter 13 bankruptcy. However, you must work with your attorney to determine which exemptions are permitted in your state.
With proper understanding, bankruptcy does not have to be too difficult. To learn more about your bankruptcy options, contact Debt Relief Centers today for fast and effective help.