How do I Know Which Type of Bankruptcy to File?

By | October 4, 2013

The type of bankruptcy you should file depends on several factors, including the type of debts you have, your income and the amount of your debts. It’s best to ask a bankruptcy attorney if your situation is complex or you are unsure if you qualify to file a certain type of bankruptcy.

Chapter 7 Bankruptcy

Most people who choose to file bankruptcy due to personal debts qualify to file Chapter 7. This is the simplest type of bankruptcy and doesn’t usually require the debtor to repay their debts. A debtor usually qualifies for this type of bankruptcy if most of their property is exempt and the type of debt they have can be discharged under Chapter 7 bankruptcy. Debts that don’t qualify for discharge under Chapter 7 include support, alimony, certain criminal penalties and recent income tax debts. One thing to remember when you file Chapter 7 is that the creditor will pursue anyone who co-signed on your debts for the entire amount until the debt is paid. You cannot file Chapter 7 if you have filed in the past six years.

Under Chapter 7 you will lose your house or car unless you have enough income to pay off the loans against them in full. Debts that are secured cannot be discharged when you file Chapter 7. The amount and types of exemptions are complicated and depend on where you live, so it’s best to consult your attorney if you want to keep your house, car or other asset that has a loan against it.

Chapter 13 Bankruptcy

Chapter 13 is an option for debtors who have enough income to make payments on their debts but are unable to pay off their debts in full. The debt payments that are past-due will be spread out over a period of three to five years and the debtor must make every scheduled payment. People who co-signed on your loans will not be pursued as long as you are making your regularly scheduled payments. You are not eligible to file for Chapter 13 unless you have not filed chapter 13 in the past 180 days and you have paid at least 70 percent of your unsecured debt off when you previously filed Chapter 13. You may be eligible to file under Chapter 13 at any time if your proposed payment plan includes 100 percent payment of your debt. It is best for debtors to file Chapter 13 if they have the necessary income to make extra payments and want to stop harassing phone calls and letters from creditors. Debtors with high incomes are more likely to qualify for Chapter 13 than Chapter 7 because debtors with low debt-to-income ratios may not qualify for Chapter 7. Your bankruptcy attorney will let you know what the income levels for your state are and help you determine whether you qualify for Chapter 7 or Chapter 13.

Debtors who file Chapter 13 may keep all of their property including their car or house as long as they are current on their payments and they make their payments according to the repayment plan set forth during the bankruptcy process. A Chapter 13 Bankruptcy may be converted into a Chapter 7 Bankruptcy under certain circumstances.

Chapter 11 Bankruptcy

The third type of bankruptcy is Chapter 11. This filing is typically used by businesses who want to keep their company and restructure their debt. The business is usually allowed to continue normal operations throughout the proceedings. As with other types of bankruptcy, a company that files Chapter 11 Bankruptcy is protected against their creditors’ actions to recover money from the time their petition for bankruptcy is submitted. This gives the business the opportunity to come up with a plan for paying back their creditors without dealing with the stress of collection actions. The business’ creditors have the opportunity to contest the repayment plan if they believe that they would benefit more if the business liquidated their assets, but the final decision on the payment plan is made by a bankruptcy judge.

The decision to file for bankruptcy is never made lightly and there are many factors that go into deciding which type of filing is best. Debtors should gather as much information as possible before contacting at bankruptcy attorney for advice about their individual situation.


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