For individuals going through a rough financial period, filing for bankruptcy can help them get their lives and finances back on track. What many people may not realize is that there are different types of bankruptcies.
For individuals, this comes down to two options—chapter 7 bankruptcy and chapter 13 bankruptcy. In this article, Kain & Henehan—bankruptcy lawyers in Minnesota—discuss the different options and which one may be best for you.
What is Bankruptcy
There are many different kinds of bankruptcy. But in all situations, the basic premise is the same—you go before a judge and declare yourself unable to pay back your debts. Bankruptcy can occur after a variety of life events such as divorce, a medical emergency, the death of a family member, etc.
Consumer Bankruptcy Chapters
Individuals, as well as corporations, can declare bankruptcy. There are two types of bankruptcy that an individual can file for, and four types that serve other groups. In this article, we will explore the two different types of consumer bankruptcy—Chapter 7 and Chapter 13.
● Chapter 7 deals with the liquidation of debts
● Chapter 13 deals with payment plans of debt
What a Chapter 7 Bankruptcy Offers
If you file for a chapter 7 bankruptcy, the ultimate goal is to liquidate all of your assets and pay off as much debt as possible. After all necessary actions have been taken, the court will review your income and secured debts. However, eligibility for this filing chapter is determined by your income. If you fall below the median income in your state, then you are eligible. If you do not fall below the median, then you are not eligible to file for this chapter of bankruptcy.
When filing a chapter 7 bankruptcy, a bankruptcy trustee will be appointed to oversee your assets. This trustee will look through your debts and dispose of any unsecured debts (credit card loans, medical debt, personal loans, etc.). Once these are disposed of, the trustee will review your secured debts and your income. They will then come up with a plan to determine what (if any) of your assets can be sold to repay your debt. While you can request some of your assets be exempt, it is ultimately up to the courts to decide which of your assets will be sold.
What a Chapter 13 Bankruptcy Offers
In contrast, a chapter 13 bankruptcy is based on a repayment plan. With a chapter 13 bankruptcy, you are able to keep your assets. In addition, some of your unsecured debts may be forgiven, but not all of them. Instead of assigning you a trustee, you and your creditors will sit down and formulate a repayment plan to get you back on track. This allows you to catch up on past-due payments.
Once this is determined, the courts will review your income, assets, equity, bills, etc. to figure out your disposable income. The entirety of your disposable income will be paid toward your debts for the next 3-5 years. During this repayment term, you have to stick to the rigid repayment plan, or else risk ending up in the same situation as before. Make all on-time payments, not get behind, and you must demonstrate you have enough income to afford these payments.
Which Option is Right for You?
For many people choosing between these two options is largely dependent on the type of debt you have and your income level. A chapter 7 bankruptcy is best for people who fall below the median income range of their state, have very few assets, and have a large number of unsecured assets.
In contrast, a chapter 13 bankruptcy is suitable for people with a higher/reliable income, those who have a large amount of non-dischargeable debts, and individuals looking to save their assets and give themselves more time to pay off their past-due debts. It is ultimately up to you to decide which option is the better choice; however, a knowledgeable bankruptcy lawyer can help you move in the right direction.
Filing for Bankruptcy in Minnesota
Are you thinking about filing for bankruptcy? The bankruptcy lawyers Kain & Henehan are here to help. With our experience and expertise, we can get you back on track and feel confident about your financial situation. Don’t take it on by yourself. Our team is ready to assist you in choosing a bankruptcy option that is right for you. Call our office today at 612-438-8006 or go online to schedule a free consultation.