Should I File Chapter 7 or 13?
Chapter 7 and Chapter 13 are the most popular types of federal debt relief, according to the book "How to File for Chapter 7 Bankruptcy." Chapter 7 allows income-eligible Americans to permanently eliminate most types of pre-existing debts, while Chapter 13 offers a partial debt repayment plan. But under bankruptcy reform laws passed in 2005, not every interested person can file Chapter 7.
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Chapter 7 Income Qualification
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There are two ways to measure economic eligibility for Chapter 7. The usual standard of measure is the annual median income level correspondent to the petitioner's state of residence and household size. As of 2011, the annual median income for a single person living in Alabama was $38,278, while the figure for a family of four living in Virginia was $85,633, according to the U.S. Trustee Program. People who earn more money must prove through a federally derived means testing formula that they cannot repay creditors and support their families; otherwise, they must file Chapter 13.
Chapter 13 Qualification
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People must have steady income to file for Chapter 13. It usually takes three to five years to complete the court-supervised partial debt repayment plan. During this time, the petitioner cannot get any new credit without court permission. Also, people with excessive debts do not qualify for Chapter 13. As of 2011, unsecured debts must total less than $360,475 and secured debts cannot exceed $1,081,400, according to the United States Bankruptcy Court. People with mortgage problems are more likely to save their homes with Chapter 13 than Chapter 7.
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Credit Reporting Time Frame
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Both types of bankruptcy reflect negatively on credit reports and will impact someone's ability to get new credit. A Chapter 7 case reflects on credit reports for 10 years from the date of filing, while a Chapter 13 plan harms credit ratings for seven years from the date of filing. Bankruptcy does not erase previous bad credit; the debts included in the case still reflect on credit reports as "included in bankruptcy."
Additional Considerations
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A lawyer is not required to file a Chapter 7 or Chapter 13 case, though some people choose to hire legal assistance. Retirement accounts and basic personal possessions are exempt from creditors, though some assets like real estate equity and stocks may be seized to offset creditor losses. Chapter 7 and Chapter 13 do not discharge child support, alimony, tax bills less than three years old, court fines, future bills and debts incurred due to criminal activities.
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