There are generally two different types of personal bankruptcy options, and there are different ways of qualifying for each. If you are considering bankruptcy as an option to enjoy debt relief, you may wonder what the differences are and how to qualify. The two personal bankruptcy options are Chapter 7 bankruptcy and Chapter 13 bankruptcy, and while they differ, they can both provide a fresh financial start for those struggling with debt.
Chapter 7 bankruptcy is a liquidation bankruptcy. For those that qualify, it provides for non-exempt assets to be liquidated to repay creditors. The means test is used to determine if the filing party qualifies for Chapter 7 bankruptcy. The means test compares the current monthly income of the filing party to the median income in the state where the filing party resides. Several different sources of income are considered. In general, if the filing party's income falls below the median income in their state, the filing party may file for Chapter 7 bankruptcy protection.
Alternately, Chapter 13 bankruptcy is a reorganization bankruptcy. Those that qualify are permitted to reorganize their debt and repay it according to a manageable repayment plan. To qualify, the filing party must have a reliable source of income to repay the debt. It is important to keep in mind that whichever type of bankruptcy the filing party chooses, both provide an automatic stay once the bankruptcy petition has been filed to protect from creditor collection actions. A general discharge which effectively cancels most debts concludes the process.
Bankruptcy protection is an important resource for individuals struggling with debt and the stress associated with it. When considering bankruptcy, it is essential to be familiar with the options available, how they work and how to qualify.
Source: Bankruptcy.findlaw.com, "Who Can File for Chapter 7 Bankruptcy?" accessed Jan. 3, 2017