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Which Bankruptcy Chapter to File?

Filing for bankruptcy can be complicated and t’s important to understand which is the appropriate Bankruptcy Chapter to file. See below for the differences in each filing.

Consumers will generally file two types of Bankruptcies:

Ch. 7 Bankruptcy:
This is the most common type of bankruptcy that individuals file. If you qualify, this bankruptcy allows you to wipe out credit card bills, medical bills, and collections bills in normally a four to six month process. Upon fulfilling all of the requirements of this chapter you will receive an order and notice from the bankruptcy court relieving you of these types of debts. Certain debts i.e., taxes, child support, and student loans are not generally wiped out by the Ch. 7 bankruptcy. These debts will survive the bankruptcy discharge. The debts that do qualify will be discharged, and this is your “fresh start” to begin to rebuild your credit standing.

To qualify you must meet a requisite household income level that is determined by your income and your household size. These figures are compiled by the U.S. Department of Justice. This test is called the “means test” and other factors (besides income and household size) are taken into consideration when determining if you qualify to file a Ch. 7 under this test. This test is quite complicated, and a full explanation will be provided to you at your consultation. If your income is above the household median income you may still qualify to file a Ch. 7 bankruptcy, or you may need to file a Ch. 13 bankruptcy (see below.)

Generally, you are able to keep home, car, and other personal property that you are paying on over time. These types of debts are called “secured claims”. You must keep these payments current during, and after you complete your bankruptcy case if you wish to retain these items.

Ch. 13 Bankruptcy:
This bankruptcy is also called a “personal reorganization bankruptcy”. This bankruptcy can be filed by almost all consumers and small business owners. This bankruptcy sets up a repayment plan that is administered by a Ch. 13 Trustee. The repayment plan will last three to five years depending on your household income, and other factors in your case. You consolidate most all of your outstanding debts to make one payment for these debts included in the bankruptcy.

This bankruptcy allows homeowners to stop a foreclosure on their home. It also stops repossession of your car or truck even if you are behind on payments. Additionally, this bankruptcy allows you to consolidate other debts including back taxes and family support debts to make up those payments over time. These can be great benefits if you need the extra protection so you don’t lose your hard earned property because you fallen behind on payments. Upon completion of this bankruptcy you receive order and notice from the bankruptcy court relieving you of the debts included in your bankruptcy case.

Additional Bankruptcy Chapters:

Ch. 11 Bankruptcy:
This bankruptcy is for Corporations and individuals with significant assets. This type of bankruptcy is generally used to restructure business debts. Certain individuals will need to file a Ch. 11 bankruptcy based on the amount of money they owe to their creditors. Most consumers will not file this type of bankruptcy.

Ch. 12 Bankruptcy:
This type of bankruptcy is used by farmers and fisherman. It has certain provisions that pertain to individuals and small business owners that are in this profession. It has added rules for helping these types of business owners based on their trade, and business operations.

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