Successfully navigating the ins and outs of bankruptcy law in the United States requires some understanding of the different chapters under which individuals and businesses can file. Two of the most commonly utilized chapters for individuals are Chapter 7 and Chapter 13.
Understanding the differences between these two debt management/debt relief opportunities can empower debtors to make informed decisions about managing their financial futures.
Chapter 7 bankruptcy: Low-income earners only
Chapter 7 bankruptcy is designed for low-wage-earning debtors who are in need of a fresh start. Chapter 7 is often completed within three to six months, allowing debtors to eliminate their eligible unsecured debts, such as credit card debt, medical bills and personal loans.
Not everyone qualifies for Chapter 7; eligibility is determined by a means test, which assesses the debtor’s income and expenses against the median income for their state. Essentially, the less a debtor earns, the more likely it is that they’ll qualify for this bankruptcy opportunity.
Chapter 13 bankruptcy: Reorganization for steady wage earners
Chapter 13 bankruptcy, on the other hand, is suited for individuals with a regular income who can afford to pay back a portion of their debts through a repayment plan over the course of several years. This chapter is particularly beneficial for those behind on mortgage payments or car loans, as it can help avoid foreclosure or repossession while debtors make manageable payments on their debts overall.
Making an informed decision
If you are struggling with overwhelming personal debt, don’t feel that you have to navigate the complexities of the Bankruptcy Code alone. Consider seeking legal guidance to better understand whether Chapter 7 or Chapter 13 bankruptcy may be viable options for your unique circumstances.
