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Which Type of Bankruptcy is Right for You?

If you’re carrying an overwhelming load of consumer debt and facing collections by creditors, you may be considering filing for bankruptcy. This is a legal remedy designed to give debtors a fresh start by relieving them of most or all of their obligations. However, there are different types of bankruptcy available depending on the debtor’s circumstances, and choosing the right option for you requires careful analysis. 

Chapter 7 bankruptcy is the most common type. It imposes an automatic stay on all creditors’ collection activity and can discharge most, if not all, of your outstanding debts. While debtors may fear the sale of certain assets to pay off creditors, the fact is that the vast majority of Chapter 7 cases fall under the category of “no-asset” bankruptcies. This means you likely won’t lose any property as most of it will be exempt under state and federal laws. However, eligibility for Chapter 7 usually hinges on passing a means test. This computation compares your income over the previous six months to the median income in your area. If your income falls below a certain level, you qualify for a Chapter 7. Even if your income exceeds the median, you may still be eligible based on other factors. The entire Chapter 7 process typically takes four to six months and you’ll emerge with a clean slate, free from the burden of unsecured debts like credit cards or medical bills.

Chapter 13, on the other hand, is a reorganization plan for individuals with a steady income who want to hold onto possessions like their house or car. If you have fallen behind on your mortgage or car payments, Chapter 13 offers a lifeline. It consists of a court-approved repayment plan, typically lasting three to five years, that allows you pay off a portion of your unsecured debt. As with a Chapter 7, an automatic stay goes into effect upon filing and stays in effect throughout the case. However, eligibility for Chapter 13 also has limitations. Your total debt must fall below a specific amount set bylaw, and you must show you have sufficient disposable income after meeting basic living expenses to make the required monthly payments. Upon successful completion of the plan, any remaining unsecured debt is discharged. 

The type of bankruptcy you choose also impacts how long it remains on your credit report. Chapter 7 stays on your credit report for 10 years, while Chapter 13 stays for seven years. However, the fresh start offered by bankruptcy allows you to start rebuilding your credit standing right away. 

The Law Office of Gregory M. Messer PLLC in Brooklyn, New York can review your situation and advise you about which type of bankruptcy is right for you. Call 718-717-2368 or contact us online to schedule a free initial consultation.

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