Blog > 2020 > June > Chapter 7 vs. Chapter 13 Bankruptcy
Dealing with insurmountable debt is an overwhelming situation. Not only is it stressful when trying to figure out how you’re going to make ends meet, but it’s also scary when you have an uncertain financial future. The good news is that both Chapter 7 and Chapter 13 are an option to get you out of debt. Read on to learn how each chapter works so you can determine which one may be right for you.
Chapter 7 bankruptcy, also known as “liquidation” or “straight” bankruptcy, is the most popular type of bankruptcy used to relieve unsecured debt (debt that is not attached to collateral).
Chapter 7 bankruptcy may be the best option for someone who has the following types of debt:
To be eligible to file for Chapter 7 bankruptcy, you must pass the means test. Read on to learn how the means test works.
The means test is a tool used to determine whether an individual has enough disposable income to pay off their debts. If you do not pass the means test, then you may want to consider Chapter 13 bankruptcy as an alternative in resolving your debt. There is a common misconception that you will not be able to pass the means test if you are deemed to have a high income — this is not true. The means test compares your disposable income against the amount of debt you have, so if you earn an above-average income, you may still be eligible to file for Chapter 7 bankruptcy.
Chapter 13 bankruptcy, also known as reorganization bankruptcy, is a bit more complicated than Chapter 7, but still effective in resolving debt, nonetheless. Chapter 13 gives you the option to pay your debts through a three to five year payment plan. Chapter 13 bankruptcy may be right for you if:
Whether you file for Chapter 7 or Chapter 13 bankruptcy, an automatic stay goes into effect immediately. The automatic stay is a bankruptcy protection that stops creditors from pursuing any further collection activity or legal action on debtors.
An automatic stay can stop the following from happening:
There are plenty of reasons why people get into debt, and deciding to file for bankruptcy isn’t an easy decision. However, when debt becomes overwhelming, it’s okay to get help. Here are some common signs that it may be time to consider bankruptcy as a debt relief option.
It’s no secret that the COVID-19 pandemic has caused some Americans’ financial problems, and it may seem that becoming debt-free is a far stretch. Even though we are in the midst of a pandemic, bankruptcy courts remain open and those who need bankruptcy protection can still file. Whether you are already in debt or the pandemic has pushed you further in, SM Law Group, APC is here to help you find a solution to your financial strains.
If you are struggling with mounting debt during this difficult time, we can help you. Contact SM Law Group, APC today at (818) 805-1758 for a free consultation and learn how you can be protected under bankruptcy laws.
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