Thinking about filing for bankruptcy? You’re not alone. Millions of Americans are overwhelmed with debt from credit cards, medical bills and mortgage payments. Filing bankruptcy can give you a fresh start…, a financial do-over.
Bankruptcy is a legal process designed to put a stop to collection calls and wipe out debt for good. What can bankruptcy do for you?
The two main types of consumer bankruptcy, Chapter 7 and 13, offer different paths to debt relief, but both are designed to erase debt and stop debt collectors.
Find out more by talking to a bankruptcy lawyer right now at The Mendez Law Firm by calling or filling out our FREE CASE EVALUATION FORM.
Your Bankruptcy Options: Chapter 7 vs. Chapter 13
There are two main forms of bankruptcy protection for individuals. Each works to resolve debt in its own ways:
- Chapter 7 is designed to eliminate unsecured debts, such as credit cards, medical bills, store cards, utility bills, payday loans and other debt not tied to property.
- Chapter 13 is designed to stop foreclosure (save your home) and reorganize debts into an affordable monthly repayment plan.
Each type of bankruptcy involves a different process and may produce different results, based on your unique financial situation.
Filing Under Chapter 7 of the U.S. Bankruptcy Code
Also called “straight” bankruptcy because of the quick relief it offers, this form of bankruptcy is frequently known as “Chapter 7” for the section of the bankruptcy code that outlines how it works.
If you want to eliminate unsecured debt like credit cards, payday loans, utility bills, medical debt and some personal loans, filing bankruptcy under a Chapter 7 may be an option.
Chapter 7 bankruptcy is usually a viable option for people with lots of unsecured debt and little income, such as an unemployed person who’s been using credit cards or payday loans to make ends meet.
If you want to file Chapter 7, you’ll have to take the Chapter 7 means test to see if you qualify. But don’t worry, most people who want to file Chapter 7 are able to. It’s a myth that the “new” bankruptcy law made it so no one can file for bankruptcy.
The means test determines whether your income is low enough to get your debts discharged. There are two steps to the means test:
- Step One: Compare your income to the median income in your state. Generally, if you “pass” the first step, you don’t have to do the second step.
- Step Two: Compares your disposable income and your unsecured debt.
See how your income stacks up. Find out your state median income, then talk to a lawyer about your legal right to file bankruptcy.
Keep in mind, if you don’t “pass” the means test, you may still be able to file Chapter 13 bankruptcy and work to repay your debt (interest-free) over time.
The Repayment Option through Chapter 13 of the Bankruptcy Code
If you’re facing foreclosure or looking for an interest-free repayment plan, Chapter 13 bankruptcy might help you out.
Under Chapter 13 bankruptcy, the court places you on an interest-free payment plan that usually lasts three to five years. During that time, you make one lower monthly payment directly to the bankruptcy court (no more dealing with creditors). They, in turn, make payments to your creditors according to a priority set by the court.
At the end of your repayment period, you may even qualify to discharge your remaining unsecured debt (such as credit card bills, medical debt, utility back payments, etc.).
Chapter 13 bankruptcy is typically an option for people who have steady income but have fallen behind on their bills. In many cases, Chapter 13 bankruptcy can stop foreclosures thanks to the protection of the automatic stay and the chance to repay mortgage debts at a reasonable rate.