How to Decide Between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy
Chapter 7 and Chapter 13 are both type of personal bankruptcy that can help you eliminate debts arising from credit cards, uninsured medical expenses, private loans and leases. The two types of bankruptcy differ greatly: while Chapter 7 plans require debtors to liquidate their assets to pay off their creditors, Chapter 13 bankruptcy, also known as wage earner bankruptcy, establishes a repayment program that is supervised by the court.
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Instructions
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Evaluate your income under means testing guidelines. To qualify for Chapter 7 bankruptcy relief, you will need to pass a means test which considers how much disposable income you have had each month for the six months prior to filing bankruptcy. If you do not have sufficient income to repay your debts after paying necessary living expenses, then you will likely qualify for chapter 7 bankruptcy.
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Compare your income to the median income for your state. If your income is less than the median income, then you may qualify to file Chapter 7 bankruptcy regardless of the amount of disposable income you have each month. If you do not qualify for Chapter 7 under the means and income test, you may still qualify for Chapter 13 bankruptcy.
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Consider your assets. Because Chapter 7 bankruptcy requires you to liquidate property to pay off your debts, if you have a home, vehicles, boats, artwork, family heirlooms or other assets that you do not wish to liquidate, consider filing Chapter 13 bankruptcy, which will allow you to keep your property.
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Assess the source of your income. Chapter 13 bankruptcy plans require individuals to repay their debts within three to five years and have reliable income, which is earned through regular wages. If you are unemployed or receive your income through public assistance, Social Security or a retirement plan, you may not qualify for Chapter 13 bankruptcy.
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Tips & Warnings
Bankruptcy laws vary by state. Contact an attorney for details on the specific requirements for your jurisdiction.
