Qualifying for bankruptcy is important for struggling consumers considering filing for bankruptcy protection to understand. First, it is important to note that here are generally two types of personal bankruptcy protection including Chapter 7 bankruptcy protection and Chapter 13 bankruptcy protection.
The two different types of personal bankruptcy protection differ in a couple of respects which also impacts how struggling consumers can be eligible for bankruptcy protection. Chapter 7 bankruptcy is a liquidation bankruptcy option that allows the fling party to liquidate non-exempt assets to repay creditors. Chapter 13 bankruptcy, on the other hand, is a reorganization bankruptcy process that allows the filing party to reorganize their debts and repay them over a more manageable period of time.
Qualifying for Chapter 7 bankruptcy depends on the means test which takes a look at the filing party’s income, usually their average monthly income in the 6 months prior to filing for bankruptcy, and compares that to the median income in their state. If they are at or below, they may qualify. If the income is too high, other options, such as Chapter 13 bankruptcy, may be available. Because Chapter 13 bankruptcy allows for a repayment plan, the filing party will need to have a reliable source of income to repay their debts with to qualify.
It is important to note that both types of personal bankruptcy can provide debt relief to struggling consumers and that it may also be possible to change the type of bankruptcy filed for depending on the circumstances and if they change. There are different personal bankruptcy options for struggling consumers to consider which is why they should be familiar with what they are and how they work so they can enjoy debt relief.