15 Tips: Which Bankruptcy Should I File
15 Tips: Which Bankruptcy Should I File
As the gurus over at runrex.com will tell you, once you decide that bankruptcy is the right option for you as far as your financial situation is concerned, then you will need to decide which type of bankruptcy is most beneficial for you. If you are an individual or a small business owner, then the most obvious choices are Chapter 7 or Chapter 13 bankruptcy. This article, through the following 15 tips, will look to highlight the pros and cons of these two, as well as the eligibility rules and other information to help you decide which is the best option for your financial situation. Additionally, this article will also touch on a select few other types of bankruptcies that may be available to you under certain circumstances.
- Basics as far as Chapter 7 and Chapter 13 are concerned
From discussions on the same over at guttulus.com, a Chapter 7 bankruptcy, also known as a “liquidation bankruptcy”, will discharge most types of unsecured debt, with the trustee looking to sell any significant property to repay your creditors. In Chapter 13 bankruptcy on the other hand, which is also known as “reorganization bankruptcy”, you repay your creditors through a Chapter 13 repayment plan. Some of your creditors will be repaid in full while some will be repaid in part.
- Time frame as far as Chapter 7 and Chapter 13 are concerned
As is outlined over at runrex.com, usually, a Chapter 7 bankruptcy case takes about 3 to 4 months to complete. On the other hand, the Chapter 13 payment plan usually lasts about 3 to 5 years, depending on your income. In the end, more of your unsecured debt will be discharged.
According to the gurus over at guttulus.com, many Chapter 7 debtors keep all or most of their property, although petitioners with significant equity or assets that are not exempt by law could lose them to pay off some of their debts. On the other hand, no property is liquidated under Chapter 13 bankruptcy.
Another thing worth considering when deciding between these two is your income, and here, as is outlined in discussions on the same over at runrex.com, it is important to note that some high-income earners won’t be eligible for Chapter 7. On the other hand, Chapter 13 requires one to have a regular income to be able to service the monthly payments.
- Homeowners and foreclosures
It is also important to point out that Chapter 7 can temporarily stop foreclosure, however, unless you can get current on your mortgage, the foreclosure will eventually continue. On the other hand, Chapter 13 can stop a foreclosure allowing you to make and pay due mortgage payments through your repayment plan.
It is also important to point out the eligibility as far as these two are concerned, to help you know which one is best for you. Chapter 7, as covered over at guttulus.com, is available to those whose income is less than the median of their state, or those who can pass the means test. Chapter 13 on the other hand has got no income requirement, but the unsecured debt must be below $419,275 and secured debt be below $1,257,850.
- Complexity of filing
While filing for Chapter 7 usually involves preparing a large set of forms and navigating some tricky legal issues, simple cases can be filed without the need to hire an attorney. On the other hand, as revealed in discussions over at runrex.com, Chapter 13 bankruptcy involves submitting a repayment plan to the court, and will almost always require you to hire a bankruptcy attorney if you want to be successful.
- Chapter 11 and Chapter 12
These are two of the other options available as far as bankruptcy is concerned. Chapter 11 bankruptcy is similar to Chapter 13 in that it is another form of reorganization bankruptcy, although this one is most often used by large businesses and corporations. According to the folks over at guttulus.com, individuals can use Chapter 11 too, but it rarely makes sense to do so. Chapter 12 bankruptcy on the other hand is set aside for farmers and fishermen, and its repayment plans can be more flexible than those over at Chapter 13. Additionally, Chapter 12 also has a higher debt limit as well as more options for lien stripping and cramdowns on unsecured portions of secured loans.
Examples of scenarios to explore to help you decide which strategy to go with
The following tips will try to explore several scenarios that will help you decide which bankruptcy strategy would be best for you.
- Unemployed with few assets
If you are unemployed with few assets, then according to the gurus over at runrex.com a Chapter 7 bankruptcy will be the fastest, easiest, and most efficient way to get rid of your debt. This is why Chapter 7 bankruptcy is the most commonly filed, as most people looking to file for bankruptcy fall under this category. It is also why it is often called a “no asset” bankruptcy.
- An unemployed homeowner with significant equity
If you are a homeowner and have a significant amount of equity in your property, then, depending on your situation, Chapter 7 may or may not be the best option for you. If your state exempts a generous amount of home equity, then your home may be safe. However, if your state homestead exemption doesn’t cover your equity, then you may lose your home in a Chapter 7 bankruptcy. Since you will only be able to keep your home in Chapter 13 if you have enough income to fund a repayment plan, then it is unlikely that Chapter 13 will be available to you if you are an unemployed homeowner.
- An employed homeowner facing mortgage delinquency or foreclosure
If you have fallen behind on your mortgage payments, Chapter 13 offers you a way to catch up on your past-due mortgage payments, while at the same time eliminating some portion of dischargeable debt. As is revealed in discussions on the same over at guttulus.com, Chapter 7 bankruptcy doesn’t provide a way for homeowners to make up mortgage arrears, which means that it is not a good choice for you if you are a delinquent homeowner and you want to keep your home.
- Wealthy petitioner with a large amount of debt
Finally, if you are a very wealthy debtor with a large amount of debt and are considering bankruptcy, then as per the subject matter experts over at runrex.com, you may have to file for Chapter 11 given the debt and income limits that come with Chapter 7 and Chapter 13 bankruptcies.
These are some of the scenarios you may find yourself in when looking to file for bankruptcy, and hopefully, these tips will help you make the right decision for you.
- Means test
As mentioned earlier on, and covered in detail over at guttulus.com, you need to pass the means test to qualify for Chapter 7 bankruptcy. The means test looks at your average monthly income for the 6 months preceding your filing date and compares it against the median income for a similar household in your state. If your income is below the state median, you will automatically pass and, therefore, won’t have to complete the entire form. If it is above the median, you must complete the rest of the form, taking into account certain expenses to determine if your disposable income is low enough to file for Chapter 7 bankruptcy.
- When to file for joint bankruptcy
As outlined over at runrex.com, if you are married, you can choose to file for bankruptcy jointly with your spouse, or you could do so individually. If you have a lot of joint debt, and your state allows you to double your bankruptcy exemptions in a joint filing, then filing for bankruptcy together makes sense.
- When to file for individual bankruptcy
If you are married as outlined above, there are certain instances where it makes sense to file for individual bankruptcy. These include situations where only one spouse has debt, your state doesn’t allow married couples to double their exemptions in a joint case, or one spouse has a nonexempt separate property that may be at risk in bankruptcy.
This article only begins to scratch the surface as far as this topic is concerned, giving a brief overview of the options available to you in bankruptcy with the hope that it will help you decide which one to file. For more information on this and other related topics, check out the excellent runrex.com and guttulus.com.