When your debt becomes overwhelming, it’s time to think about bankruptcy. You may have questions about what bankruptcy can do for you, the long-term consequences, and what you need to do next. When you work with me, we’ll be sure to get a comprehensive view of your situation so that we can choose the right type of bankruptcy for you. Soon, you’ll be on the road to financial freedom.
Chapter 7: A Clean Slate
When people think of bankruptcy, they usually think of debt being completely discharged and making a new start with a clean slate. This is the situation that a Chapter 7 bankruptcy can provide. Chapter 7 won’t wipe out all types of debt, but will take care of the majority of debt that people usually struggle with such as medical bills, credit cards, personal and payday loans, and utilities. Alimony, child support, and tax debt cannot be included, and there are some very specific and strict rules about including student loans.
People sometimes wonder if they will lose their car or home with a Chapter 7 bankruptcy. This is evaluated on an individual basis depending on the value and how much you owe, but if you’d like to keep your property, you’ll need to stay up to date on payments and also keep your insurance active.
Chapter 7 sounds like a great new start, but there are requirements you must meet in order to qualify. When we meet, we’ll conduct a Means Test, (weird that I haven’t written a Means Test for Cascade yet! Will do that next) which looks at your income, living expenses, assets, and debt. Using this information, the calculation figures your disposable income. If your disposable income does not allow you the “means” to pay off your debt, you are eligible for a Chapter 7 bankruptcy.
Chapter 13: Keep Your Assets
Even if you qualify for a Chapter 7, it may be worthwhile to consider other options such as a Chapter 13 bankruptcy. A Chapter 13 does greatly reduce your debt and it also allows you to keep your property and assets. This type of bankruptcy was designed primarily for people who cannot afford to keep up with their debt, but have relatively high income and valuable property. They would benefit from a restructuring of their debt, and can make payments that have been adjusted to their income. With a Chapter 13, consumers are put on a repayment plan for 3 to 5 years, and at the end of that time, the remainder of their debt is discharged. Some people avoid Chapter 13 because they don’t understand that it actually does discharge most of your debt.
If you’re considering bankruptcy but don’t know if you should file a Chapter 7 or Chapter 13, please give me a call. With my years of experience and knowledge, I can help you make the most beneficial choice.