Choosing a bankruptcy chapter is not a straightforward exercise. In fact, choosing the wrong Chapter is one of the biggest mistakes people make when they try to file a bankruptcy without an attorney.
While we recommend talking to a Haysom Law attorney before choosing your Chapter, we can give some general guidelines on when each Chapter is appropriate. Here are some questions to ask.
What kind of income and assets do you have?
You’re only eligible for Chapter 7 bankruptcy if you can pass the means test. This comes in two parts.
The first is the test to determine if your income is low enough to qualify. That uses a straightforward chart. For example, you can file for Chapter 7 in New York if there are 3 people in your household and you make less than $91,381.
The problem is, most people stop here. There’s a second part to the test.
The second is the disposable income test. If you have too much disposable income the courts may require you to use a Chapter 13 case instead, so that disposable income can be put towards paying off your creditors.
An attorney can run you through the means test and help determine whether or not you’ll qualify.
Are you trying to save the house or the car?
In a Chapter 7 bankruptcy your assets get sold to pay off your creditors. There are certain allowable exemptions.
If the exemptions work out in your favor then you may be able to keep your house and car by reaffirming the debt after your discharge. If they don’t, then the house and car both will generally be sold to cover your debts.
If the exemptions do not work out in your favor and you want to keep these assets then you’ll need to look into a Chapter 13 bankruptcy. This gets these creditors paid through the life of the plan. If you haven’t paid the balance by the end of the plan you can reaffirm those debts at those times, with fewer financial obstacles standing between you and paying them off.
Chapter 13 may give you time to pay down balances and sell these assets so that they’re off your plate, allowing you to downsize.
Are you willing to hire an attorney?
About 48% of Chapter 7 bankruptcy cases are successful without an attorney’s help. These aren’t great odds, but you may be able to get the job done in some incredibly limited cases.
Less than 1% of Chapter 13 cases are successful without an attorney’s help. The process is just too complex and there are too many issues which can come up. If you already know you’re going to need to file a Chapter 13 case then you already know you’re going to need an attorney to help you.
Reach out to Talone Law to schedule a free consultation today.
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