Is Chapter 7 Bankruptcy More Affordable?

When you’re buried in debt and unable to see a way out of your situation, it’s natural to start thinking about bankruptcy, and wondering whether it makes more sense for you to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy.   The truth is that trying to figure out which bankruptcy chapter may not be worth your time, as each Chapter addresses a different type of need. To file for Chapter 7, you need to be able to prove that your income is so far below your fixed expenses and debts that there is no chance that you would be able to pay them off as things stand, and that to satisfy even a portion of your debt requires selling off some of the assets that you own. The determination of this is done through what is known as a means test, and if you are shown to have enough income to simply need help, you will not have the option of filing for Chapter 7. Instead, you will be guided into filing for a Chapter 13 bankruptcy.

Under a Chapter 13 bankruptcy, rather than discharging your debts in a matter of months, your debts will be reorganized. This can mean several different things, including the possibility that the amount of time that you have to pay off your debt is extended, your interest rate or payment being lowered, and other changes in the terms. The total amount that you owe may be reduced, and after you’ve made payments after a prescribed period of time any remaining balance eventually discharged. Though your debts won’t be entirely discharged without repayment the way that they are under Chapter 7 bankruptcy, you will not be required to liquidate your assets. Importantly, you also will be able to wipe your bankruptcy off of your credit report in seven years instead of the ten years that it takes to clear a bankruptcy under Chapter 7.

From a filing perspective, the cost of the two bankruptcies is almost equivalent, and though the Chapter 7 bankruptcy has the advantage of eliminating almost all of your debts and giving you a chance to start over, you also end up losing assets you may be emotionally invested in, including your home or luxury items that you have purchased for yourself or for loved ones.

The first step in determining the right step for you is to speak to an experienced bankruptcy attorney. Contact our office today to set up a time for us to discuss your situation.