Chapter 7 vs. Chapter 13 Bankruptcy: Which One is Right for Me?

Once you’ve decided that filing for bankruptcy is the right solution for your financial dilemma, it’s time to choose which type of bankruptcy is appropriate. For most individuals or small business owners, the most obvious choices are Chapter 7 or Chapter 13 bankruptcy. The choice between these two chapters will ultimately depend on your own debts, assets, income and financial goals.

Chapter 7 bankruptcy allows a debtor to discharge most types of unsecured debt. After filing, a trustee will be appointed, who will sell any of your valuable nonexempt property to repay your creditors. A typical Chapter 7 case normally takes several months to complete the paperwork, sell nonexempt assets and discharge debt. However, for individuals whose debts are primarily “consumer” debt, Chapter 7 bankruptcy is generally only available to those who can pass a “means test” showing that their income is less than the median amount in their state. Thus, if you are a high-income earner, you may not be eligible to file under Chapter 7.

Chapter 13 bankruptcy allows a debtor to either fully or partially repay creditors through an agreed-upon repayment plan, which makes it possible to discharge debt without liquidating any assets. This type of plan will typically last anywhere from three to five years, depending on your income. Although you will be required to have a regular source of income to file under Chapter 13 and make monthly payments, there is no minimum or maximum income requirement. However, your unsecured debt cannot total more than $383,175 and your secured debt cannot total more than $1,149,525.

Filing for bankruptcy may seem overwhelming, but an experienced attorney can help you choose the most appropriate steps forward and guide you through the process from start to finish. Consult a trusted Albuquerque bankruptcy lawyer for further guidance.