If you’re head over heels in debt, declaring bankruptcy can be the right decision for you. Bankruptcy is a legal procedure that allows entities to seek relief from their debts. Not only can it maintain your peace of mind but it can also help you get back on your feet financially. Several types of bankruptcy can be filed, but the most common of them are chapter 7 and chapter 13. Read on to find out more about them.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy liquidates your non-exempt assets to pay off as much debt as possible. All other non-exempt assets are preserved while the remaining debts are discharged. One of the terms and conditions for filing for a Chapter 7 bankruptcy is that you don’t have sufficient income to pay your debts, according to bankruptcy attorney Chip Vowell. This is verified in the first stage of the “means test” and the second stage checks if your monthly disposable income is less than a portion of your monthly debt obligation. You can qualify to declare bankruptcy under Chapter 7 only if you pass both the stages of the means test. Otherwise, you can consider filing under Chapter 13. The entire procedure takes 3 to 6 months to complete and ward off the debts.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy, also known as reorganization bankruptcy allows you to get rid of your debts by restructuring the payments plan while keeping your income in mind. It is the best option if you want to retain your assets or don’t qualify for Chapter 7. The payment plan can be spread over a period of three to five years, but the amount of debt should not exceed a set threshold. After the designated period of the payment plan, the remaining debts are discharged.