24 Jun Should I File A Chapter 7 Bankruptcy Or A Chapter 13 Bankruptcy?
Should you file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy?
The answer to the question of what type of bankruptcy to file is that it depends on your financial circumstances.
A Chapter 7 bankruptcy and a Chapter 13 bankruptcy are really designed for two different types of debt situations.
A Chapter 7 bankruptcy, which is often referred to as a “Fresh Start” bankruptcy, is used when a person has only unsecured debts, such as credit card bills and medical bills, or when a person has unsecured debts and also has secured debts, such as a house note or a car note, and the secured debts are current.
The Chapter 7 bankruptcy lets you get rid of the unsecured debt and keep (reaffirm) the secured debt, allowing you to get a “start fresh”.
A Chapter 13 bankruptcy, which is often referred to as a “Wage Earner” bankruptcy is usually used when a person is behind on a secured debt such as a house note or car note and is at risk of having a foreclosure on their house or a repossession of a car because they are behind on their monthly payments (in arrears).
With a Chapter 13 bankruptcy, your attorney helps you prepare a “Plan” that allows the person to continue to pay his debts on a monthly basis and pay back the arrears over a period of time, usually 36 to 60 months.
For a Chapter 13 bankruptcy Plan to work, the debtor must have a source of income, which is why a Chapter 13 bankruptcy has come to be known as a wage earner bankruptcy.
The income must be enough money to pay all of the debtor’s monthly bills, including the house and car note, and still have enough money left to pay the arrearage.
Under a Chapter 13 bankruptcy the debtor may have to pay some or all of their unsecured debt as well as their secured debt depending upon their income.
Also, some debtors may have to file a Chapter 13 bankruptcy even if they are not behind on a secured debt if they make too much money based upon a calculation of income known as a means test.
The decision on the type of bankruptcy to file is one you should make with an experienced bankruptcy attorney. If you decide to file for bankruptcy, consider one of the attorneys with the Bankruptcy Law Network.
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