Which type of bankruptcy should I file for?
Today, the average American has roughly $38,000 in personal debt, excluding mortgage debt, as reported in Northwestern Mutual’s 2018 Planning and Progress Study. Credit card debt comprises some 25 percent of all debt, and two out of ten Americans spend between half and all of their monthly income simply repaying their debts. If you are one of the millions of Americans significantly burdened by debt, you may have considered filing for bankruptcy. There are two main types of bankruptcy which you could seek: Chapter 7 and Chapter 13. Each chapter has certain benefits and drawbacks, as explained by our Miami Valley, Ohio bankruptcy lawyers below.
Chapter 7 Bankruptcy Basics
Chapter 7 bankruptcy is also known as the liquidation chapter. Those who meet the requirements to file for Chapter 7 bankruptcy may be able to totally eliminate their unsecured debt. With this type of bankruptcy, your non-exempt assets will be sold to repay your creditors. Chapter 7 allows for the comprehensive elimination of your debt, but not everyone can seek this chapter and some who wish to may ultimately be deterred due to the liquidation requirement.
Chapter 13 Basics
Chapter 13, on the other hand, is known as the reorganization chapter. In Chapter 13 bankruptcy, you will seek to repay your debts over time, rather than eliminate them. Your debts become essentially consolidated, allowing you to make pre-determined monthly payments over a period of three to five years. Chapter 13 is best for those who cannot qualify for Chapter 7 or individuals with significant assets that they do not wish to sacrifice.
Chapter 7 Qualification Requirements
To file for Chapter 7 bankruptcy, you will need to meet the means test. The means test compares your income for a family of your size to that of the median household income in Ohio. These figures vary annually. If you make under the median income, then you will likely pass the means test. If you make over the median income, you could still qualify. The court will then look to determine your actual disposable income. Living expenses, health care costs, and other expenses will be deducted from your income to arrive at this figure.
If you are considering bankruptcy, you will want to closely weigh which type of bankruptcy is best for you. Contact a bankruptcy lawyer for more assistance with exploring your bankruptcy options.