Have you been struggling to pay your bills lately and have you started considering seeking help for your financial distress? If so, evaluating bankruptcy is a good idea and solution for financial problems. As you evaluate your options, you will see that the two main branches of bankruptcy are Chapter 7 and Chapter 13. Here are several ways to know which option is right for you.
What Is Your Income Level?
The amount of money you earn effects your ability to choose which branch of bankruptcy to use, and that is why a bankruptcy lawyer will ask you to bring in proof of income. The lawyer needs to know exactly how much money you make to determine if you qualify for Chapter 7. You will only qualify for this branch if your income is less than the median income in your state.
To determine the answer to this question, your lawyer will add up all your income for the last six months and will complete a means test. The lawyer must include any income you earned during this time, even extraordinary income. For example, if you received an inheritance of money during the last six months, your lawyer must legally count this as income.
If your income exceeds the median income, you cannot file Chapter 7. Instead, you must use Chapter 13. If you qualify for Chapter 7 based on your income level, you should not automatically assume that this is the branch you should file. Sometimes filing for Chapter 13 is a better choice, even when a person qualifies for Chapter 7.
What Types of Debts Do You Have?
The types of debts you have also play a huge role in selecting the branch of bankruptcy that is best for you. Chapter 7 offers forgiveness of certain types of debts, whereas Chapter 13 requires repayment of most debts. This key difference in these branches often cause people to assume that Chapter 7 is superior; however, this is not always true.
If you owe money on personal loans, medical bills, and credit cards, filing for Chapter 7 is often highly beneficial as it will wipe out these types of debts completely.
On the other hand, if you owe money for child support, IRS taxes, or student loans, Chapter 7 will not offer any form of relief. Additionally, if you fall behind on car payments or your mortgage payments, Chapter 7 offers no help. In these situations, a lawyer would recommend Chapter 13 instead of Chapter 7.
What Is Your Current Living Situation?
Finally, you should factor in your housing situation before choosing which branch of bankruptcy to use for debt-relief purposes. If you do not own a house, this factor will not matter. If you do own a house and are current on the payments, filing for Chapter 7 could be fine.
You do risk losing your house if you file for Chapter 7 even if you do not have a past-due balance; however, the risk only applies if you have a large amount of equity in the home. If you have little equity, you would not risk losing the house by filing Chapter 7.
If you have a past-due balance or are facing foreclosure, filing for Chapter 13 would offer the most relief. Chapter 13 stops repossessions and foreclosures and gives you time to repay these debts and any others that you owe.
After reviewing this information, you will probably have questions about bankruptcy and alternative options you could consider. If so, contact Affiliated Legal Services, Inc. We offer bankruptcy services and will help you determine which branch is right for your personal situation.