If you're thinking of filing for bankruptcy, you'll probably be faced with two options: Chapter 7 and Chapter 13 bankruptcy. Your bankruptcy lawyer will help you determine the appropriate option for your situation. Here are some frequently asked questions regarding Chapter 7 and Chapter 13 bankruptcies.
What Are the Requirements?
To qualify for Chapter 7 bankruptcy, you should pass the mean test. This is a test that reviews the average amount of money you have earned in the past six months. The test compares your total income over the past six months against a median income for a similar household. You'll pass the test if your income is less than the state median.
However, if your salary is above the state median, your bankruptcy attorney will help you complete the bankruptcy form so you can show that your disposable income is low enough to make you eligible for a Chapter 7 bankruptcy.
In a Chapter 13 bankruptcy, your bankruptcy lawyer will help you create a repayment plan. This plan lays out a 3–5-year schedule for paying back your debts. To qualify for this option, you shouldn't have more than $419,275 in unsecured debts and $1,257,850 in secured debts.
What Happens to Your Property?
In Chapter 7 bankruptcy, your property will be sold and the proceeds used to settle your debts. However, some of your property is exempt from being sold. There are state and federal exemption rules. For example, you may be able to retain $23,675 of equity in homes and $1,283,025 in retirement account savings. Your bankruptcy attorney will advise you on which exemptions apply to your case. Married couples who file a joint bankruptcy get twice the value of exemptions.
In Chapter 13 bankruptcy, your assets aren't sold. In this plan, you have to consent to a court-approved repayment plan. The plan may span between 3-5 years based on your income. During this period, if you manage to clear back payments on assets such as your home and car and are punctual with your current payment, you have a chance of retaining these assets after the repayment plan period is complete.
Which Plan Is Suited for You?
Chapter 7 bankruptcy is also known as a "no-asset bankruptcy." This plan works for unemployed debtors with no assets. It may also work for an unemployed homeowner with a significant amount of equity. However, this is only if the state exempts a significant amount of home equity. In such a case, the debtor's home is safe. If the exemption doesn't fall within the value of the debtor's equity, they may lose the home, and this may not be a suitable option.
Chapter 13 bankruptcy works for debtors who are late on mortgage payments. This plan provides a way for debtors to catch up with their mortgage payments and also some of their debts. It's a good option to save your home from foreclosure and clear medical and credit card debt. For more information, contact a bankruptcy lawyer.Share