Bankruptcy: Determining Which Chapter Suits Your Financial Situation
When you have a lot of debt and you need a way to stabilize your finances, filing for bankruptcy is a reliable solution. However, before you do so, it is best to know which type of bankruptcy is best for your personal situation.
Your first option is to file for Chapter 7 bankruptcy, which allows you to discharge or get rid of your debt, so you can start over financially. This method means you do not have to pay your creditors back. However, it is important to note that this form of bankruptcy does not allow you to discharge child support, alimony or student loan amounts.
To qualify for Chapter 7 bankruptcy, your income needs to be the same or below the median income for a family of similar size in your state. If your income is higher than the median amount, this does not automatically mean you cannot file for Chapter 7 bankruptcy.
In some situations, a means test is done, which calculates the amount of money you have available to pay your debt and your living expenses. When your debt takes too much of your income and does not leave you money for food, rent and utilities, a judge may still allow you to file for Chapter 7.
For those who do not qualify for Chapter 7, you have the option of filing for Chapter 13 bankruptcy. With this option, you make a payment plan with the courts to repay your creditors over time.
The average plan is for five years, though in some cases, you can petition the court to shorten the period to three years. The shorter time span is for those with a lower median income or if you are capable of repaying your creditors within three years. However, only the judge can make the final ruling on whether you will be allowed to shorten the repayment period.
You should also be aware that the courts look at more than just your income and debt amounts before ruling on your bankruptcy. For example, the judge will make you pay priority debts such as alimony and child support in full over the repayment period, while allowing other debts like personal loans and credit card amounts to be lowered as long as the creditors agree.
When your debt is climbing and you are having a very hard time paying your bills, it may be in your best interest to file for bankruptcy. However, before doing so, you need to consult a lawyer like one from Young Wooldridge that has experience in this area. With their help, you can determine which type of bankruptcy is right for repairing your financial situation.