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Helping People Get A Fresh Financial Start to Regain Financial Independence

Helping People Get A Fresh Financial Start to Regain Financial Independence

Choosing between Chapter 7 and Chapter 13 bankruptcy

On Behalf of | Feb 9, 2021 | Chapter 7 Bankruptcy

Deciding whether to file for bankruptcy in Indiana is not an easy choice to make. Before you make your decision, you should know that there are two types of bankruptcy available to individuals: Chapter 7 and Chapter 13. Each type has its own pros and cons, but generally, Chapter 7 allows for elimination of many unsecured debts while Chapter 13 focuses on a restructuring of debts. Only people that fall below a certain income threshold will be eligible for Chapter 7 bankruptcy.

Chapter 7 bankruptcy

A vast majority of bankruptcies are Chapter 7 bankruptcies, as they are often simpler and less time-consuming than Chapter 13 bankruptcies and are best suited for people with fewer assets who mainly have consumer debts. The key to a Chapter 7 bankruptcy is a liquidation of your assets, as most of your unsecured debt will be discharged. Non-exempt property will be sold to repay creditors.

The means test will determine if you are eligible for Chapter 7 bankruptcy by considering your average monthly income in the six months leading up to your bankruptcy filing and compare it to the median income for households of a similar size in Indiana. If your income is higher than the median income, you will have to move to the second step of the test and deduct certain expenses and see if your disposable income is low enough to qualify for Chapter 7 bankruptcy.

Chapter 13 bankruptcy

Under a Chapter 13 bankruptcy, you will be allowed to pay back your secured debts over a three to five-year period, in accordance with a repayment plan that you come up with. However, your secured and unsecured debts must be lower than the debt limits assigned for Chapter 13 bankruptcies. Homeowners who are behind on their mortgage payments may benefit from Chapter 13 bankruptcy, as it gives them a chance to save their homes from foreclosure. People with significant assets may also benefit as they will generally get to keep most, if not all, of their property. However, Chapter 13 bankruptcies are generally more complicated than Chapter 7, requiring multiple court appearances.

Before you file your paperwork, it may be in your best interest to consult with an attorney to determine which type of bankruptcy is right for you.

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