Debtor Poses Age Old Question When Considering Bankruptcy

Debtors frequently ask if they should file Chapter 7 or Chapter 13 Bankruptcy.

This personal bankruptcy story was posted on the internet in July of 2011:

“My wife and I are on the brink of financial disaster. Unfortunately, it is of our own doing. We really need advice. We both have normal jobs, with roughly $70,000 in credit debt, and a HELOC for $73,000. We have maxed out the cards from years of frivolous spending and my wife’s small business. Our cars are 8 and 11 years old, and we have no significant assets other than our house. After factoring in the HELOC, 1st mortgage, and current value… we have approximately $5,000 equity in our home…Do you think we should file Chapter 7 Bankruptcy? We are afraid we will lose our home and cars.”

Can these debtors file Chapter 7 Bankruptcy? To file Chapter 7 Bankruptcy debtors must pass an income and means test which was implemented into bankruptcy law in the 2005 changes. Means testing refers generally to the eligibility for relief for debtors who have sufficient financial means to pay a portion of their debts.

The means test is perhaps best recognized in the United States as the test used by courts to determine eligibility for Title 11 of the United States Code. Debtors whose income is below the state’s median income are not subject to the means test and are eligible to file Chapter 7 Bankruptcy if they qualify on all other legal grounds.

There are two types of bankruptcies most individuals can file- Chapter 7 or Chapter 13 bankruptcy. Chapter 7 Bankruptcy, commonly called liquidation of your assets, is normally the simplest and quickest form of bankruptcy. It is available to individuals, married couples, corporations, and partnerships.

Chapter 13 Bankruptcy is the second bankruptcy available to individuals and is called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts.

Filing Chapter 13 Bankruptcy has certain advantages. Chapter 13 Bankruptcy may allow you to: save your home from foreclosure, to reschedule secured debts, to provide protection for co-debtors, to consolidate your loans under one plan, to keep non-exempt property, to extend certain tax obligations, student loans, or other such qualifying debts, and to qualify for bankruptcy relief.

Filing a Chapter 7 will not offer all of these benefits. If you have assets you want to keep, you currently have an income, and you want to try to pay your creditors what is reasonable, you may want to consider filing Chapter 13 Bankruptcy. If you do not have many assets, you do not have a mortgage, you just want to get out from under the burden of your debts, and you qualify, you may want to consider filing Chapter 7 Bankruptcy.

Whether you are considering Chapter 7 or Chapter 13 Bankruptcy, contact a bankruptcy lawyer. If you need relief from the stress of debt and you live in or around the metropolitan area of Bakersfield, California, contact us at .We will help you find a bankruptcy attorney in your area who will answer your bankruptcy questions.

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