Choosing Which Bankruptcy To File
The filing process is not something people jump to quickly when attempting to resolve their debts. With so much to consider, bankruptcy is generally the last thought from anyone’s mind. However, bankruptcy offers two ways to resolve debts and get back on track, each with their own set of advantages and risks. Ask yourself the following questions to determine which type of bankruptcy may be best for you:
Can I afford to repay my debts?
Your financial situation is the main determining factor behind whether or not you will be able to file for Chapter 7 bankruptcy. As the most sought after type of bankruptcy debt relief, Chapter 7 can provide total elimination of all unsecured debts. While it doesn’t hurt to apply for Chapter 7, understand that qualifying isn’t easy and even if you think you can’t afford to repay, the court could deem otherwise. If you were required to file Chapter 13 instead, the court will use your income level, the overall value of your assets and the total amount owed to calculate your monthly payment amount.
Am I concerned about, or at risk for, foreclosure?
As one of the biggest investments of your financial life, losing a home to foreclosure can be devastating. While Chapter 7 bankruptcy allows for debt elimination, protecting your home from liquidation is more complicated in a Chapter 7 filing. In general, filing for Chapter 13 is the better way to resolve mortgage debts, as it offers full protection against foreclosure and liquidation while you make payments to get caught up.
Are my debts mostly student loans, taxes or unpaid child support debts?
Many people enter the bankruptcy process only to find out that their debts do not qualify for bankruptcy protection. Unpaid child support, alimony, court fines or criminal restitution payments are never eligible for elimination or repayment in bankruptcy. While the general rule of thumb holds that student loan debts are not eligible for bankruptcy, there are some cases in which they may be approved to become part of a Chapter 13 repayment plan. Tax debts must meet specific criteria in order to be eligible for bankruptcy, but are rarely allowed in Chapter 7 and may, instead, become part of a Chapter 13 case.