Which Bankruptcy Is The Right Choice For Me?
The decision to file bankruptcy is often times not an easy one to make. However, the relief a bankruptcy filing provides can be substantial. A bankruptcy filing can stop creditors’ harassing phone calls, stop wage garnishments, prevent vehicle repossessions, stop foreclosure, as well as stop levies against your bank accounts.
There is no minimum amount of debt that you must have in order to file for bankruptcy protection. Some individuals may have just $10,000.00 in debt, whereas others may have several hundred thousand dollars worth of debt. There are, however, income requirements that come into play in determining whether you qualify for a Chapter 7 or a Chapter 13 Bankruptcy.
Chapter 7 Bankruptcy
A Chapter 7 Bankruptcy is the most common type of bankruptcy that is filed, and it is often referred to as a “liquidation” bankruptcy. However, this does not mean that you will lose all of your property. In fact, in most cases people are able to keep their home, vehicles, and other personal property through the Chapter 7 Bankruptcy process so long as they remain current on the payments. The amount of property you are able to keep through the bankruptcy often times depends upon the amount of equity you have in your home. If you are considering bankruptcy, it is important to consult with an experienced attorney before you file to ensure that you will not lose any property in a Chapter 7 Bankruptcy case.
To qualify for a Chapter 7 Bankruptcy you must pass what is referred to as the “Means Test.” The Means Test looks at your household size and income level and compares it against the median or average income for a similar household size. If your income is below the median level for your household size, you qualify for Chapter 7 Bankruptcy. For example, a household of 4 in Minnesota can make up to $92,277.00 to qualify for a Chapter 7 Bankruptcy. This number is adjusted every few years. The Chapter 7 Bankruptcy process is completed in just around 90 days.
Chapter 13 Bankruptcy
In a Chapter 13 Bankruptcy, you make a monthly payment to the Chapter 13 Bankruptcy Trustee who uses that money to repay your creditors. Depending upon your income and household size, the repayment plan can last between 36-60 months.
There are many reasons that a Chapter 13 Bankruptcy may be more advantageous than a Chapter 7 Bankruptcy. For example, if you are behind on your mortgage, you can use the Chapter 13 repayment plan to catch up on the amount you are behind over a reasonable period of time (usually anywhere from 12-60 months). You can also use the Chapter 13 Bankruptcy to catch up on your missed vehicle payments to avoid repossession. Finally, if you have a lot of extra assets like boats, campers, extra homes or pieces of land, you may need to look at filing a Chapter 13 Bankruptcy to avoid losing your property in a Chapter 7 Bankruptcy.
If your income level is over the median income for a similar household size, you are unable to file a Chapter 7 Bankruptcy and you must file a Chapter 13 Bankruptcy. The amount of your monthly payment is affected by a number of factors, but primarily the court looks to your average monthly income after subtracting your average monthly expenses.
If debt relief is something you are ready for, I would recommend contacting an experienced bankruptcy attorney to discuss your options.
By: Amy E. Sauter, Attorney at Law