Struggling under the weight of overwhelming debt can be stressful and disheartening. If you’re wondering whether bankruptcy is the right solution, this guide will walk you through the basics of eligibility, the different types of bankruptcy, and key considerations to help you determine your next steps.

What Are the Types of Bankruptcy?

Understanding the two primary forms of personal bankruptcy can help you identify which option may be best for your situation.

Chapter 7 Bankruptcy: Liquidation Bankruptcy

  • What It Is: Chapter 7 allows you to eliminate most unsecured debts, such as credit card balances and medical bills.
  • How to Qualify:
    • Pass the means test, which compares your income to your state’s median income.
    • If your income is below the median, you qualify.
    • If your income is above the median, additional calculations will determine your eligibility.
  • Key Benefit: Quick resolution, with most cases concluding in four to six months.  The case will be held open longer if the trustee is administering assets.

Chapter 13 Bankruptcy: Reorganization Bankruptcy

  • What It Is: Chapter 13 enables individuals with steady income to reorganize their debts into a repayment plan lasting three to five years.
  • How to Qualify:
    • Your unsecured debts (e.g., credit card balances) must be below $465,275, and your secured debts (e.g., mortgages) below $1,395,875 (as of 6/2024).
    • You must have a steady source of income to support a monthly plan payment.
  • Key Benefit: Allows you to keep your assets.  Allows debtors to catch up on missed mortgage and car loan payments and provides court protection for the entire length of the case.

Other Eligibility Requirements for Bankruptcy

Mandatory Credit Counseling

  • What It Is: Before filing, you must complete credit counseling through an approved agency.
  • Purpose: To review and educate the debtor on their budget.
  • Timing: Must be completed within 180 days before filing your bankruptcy case.

Restrictions from Previous Bankruptcies

  • Time Limits:
    • For Chapter 7: You must wait eight years after a prior Chapter 7 filing date or four years after a Chapter 13 filing date.
    • For Chapter 13: You must wait two years after a prior Chapter 13 filing date or four years after a Chapter 7 filing date.

Feasibility of Repayment Plans (Chapter 13 Only)

  • The court requires a realistic repayment plan that demonstrates your ability to make timely monthly plan payments.
  • Your income and expenses will be reviewed to ensure the plan is manageable.

Consulting a Bankruptcy Attorney

The process of filing for bankruptcy can be complex, and navigating it without guidance could lead to costly mistakes. A bankruptcy attorney can:

  • Evaluate your financial situation and determine which type of bankruptcy you qualify for.
  • Help you prepare necessary documentation and file your case.
  • Represent your interests in court and ensure compliance with all requirements.

Questions to Consider

  • Have you reviewed your income and debt levels to see which bankruptcy chapter you may qualify for?
  • Do you understand the benefits of filing bankruptcy on your financial future?
  • Are you ready to consult with a professional to explore your options?

Take the First Step Toward Financial Freedom

If debt has taken over your life, bankruptcy might be the fresh start you need. Contact our office today for a free consultation with an experienced bankruptcy attorney. Together, we’ll explore your options and help you regain control of your finances.