Bankruptcy can be a great financial tool for those who have an unmanageable amount of debt and need a clean slate. Depending on your individual situation, you may qualify for either Chapter 7 or Chapter 13 bankruptcy. Both will help you to regain control of your finances and alleviate debt, but they are very different in terms of time frame and resources required by you.
Qualifying for Chapter 7
In order to qualify for a Chapter 7 bankruptcy filing, you must pass a means test that determines that you are unable to pay your debts. You must also take a credit counseling course prior to filing. Most people who qualify for Chapter 7 have little or no property and have little or no money left after meeting their basic needs each month. Many of these people may even be unable to meet their basic needs.
Chapter 7 Process
The process of Chapter 7 bankruptcy eliminates virtually all unsecured debt, with a few exceptions, such as student loans. The whole process takes only a few months from filing to discharge and creditors cannot contact you during this time. Once your bankruptcy is discharged, all of the eligible debts included in it are discharged as well and you will no longer be responsible for them, but your credit will be negatively impacted for several years and establishing new credit may be difficult. However in most cases, credit has been destroyed before filing for bankruptcy thus bankruptcy begins the road towards better credit.
Qualifying for Chapter 13
Those who don’t qualify for Chapter 7 bankruptcy may qualify for Chapter 13. Also, there are many instances where you may qualify for a 7 but will find greater relief in a Chapter 13. Chapter 13 is for debtors whose unsecured debts are under $383,175 and whose secured debts are less than $1,149,525. This is the best option for homeowners who have built up equity and wish to keep their home or other property. People who have a steady income and are able to keep up with their living expenses but who have fallen behind on debt repayment and can’t get caught back up can find relief in Chapter 13 bankruptcy. It is also a great option to preserve other assets or reduce car payments.
Chapter 13 Repayment Plan
Chapter 13 gives debtors 3-5 years to catch up on delinquent accounts by spreading their payments out over a longer period of time in order to reduce payment amounts. In most cases, interest on unsecured debt is eliminated and the principal balance is reduced to a very small amount. Creditors cannot contact debtors during this time frame and must contact your attorney instead. The debtor will make one monthly payment to the trustee who will distribute it amongst creditors to satisfy their debts.
Making the Decision
Which form of bankruptcy you choose depends on a number of factors, including the amount of your debt, the type of debt you have, and your debt to income ratio. A Utah Bankruptcy attorney can review your information and help you figure out whether you should file for Chapter 7 or Chapter 13 bankruptcy. They will also help see you through the process through from beginning to end to make sure that you have the best start possible on your new future once your bankruptcy is discharged.