How Do You Know Which Bankruptcy is Right For You? 

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Bankruptcy is a serious step, but if bills are piling up and you’ve exhausted all other options like credit counseling, bankruptcy may be the answer. A Chapter 7 bankruptcy will liquidate debt while a Chapter 13 repayment plan will allow you to make up past-due mortgage or car payments over three to five years. 

Chapter 7 

While Chapter 7 bankruptcy legally discharges many types of debt, it isn’t available to everyone. The bankruptcy code contains a “means test” that examines your disposable income (income less expenses) and compares it to the median income for your state to ensure you can reasonably repay debts with what you make. If you fail the means test, your only option is Chapter 13. 

When you file for Chapter 7, you receive an automatic stay that prevents creditors from taking collection actions against you or your property. This includes lawsuits, wage garnishment and even telephone calls demanding payment. 

Most people who file for Chapter 7 are able to keep their homes and cars, provided the value of these properties isn’t above certain levels. However, there are exceptions. For example, if you have equity in your home that exceeds the amount allowed by state law for home exemptions, you may lose it. You also could lose luxury possessions, like a second home or boat. 

Chapter 13 

In Chapter 13, debtors make a plan to repay all or some of their debt through a monthly payment that is distributed to creditors over three to five years. Debtors can usually pay a portion of their secured debts, such as mortgage or car payments, and catch up on arrearages over this period. Debt collectors cannot contact a debtor during this time. 

In he bankruptcy court, bankruptcy lawyers in Harrisburg PA can eliminate unsecured debt, such as credit card balances and medical bills, by discharging it. A bankruptcy case also can reduce the amount of debt secured by collateral, such as a home or car, through a process called cramdown. 

For example, if a homeowner owes more than the market value of his or her house, it could qualify for a cramdown under Chapter 13 because a junior loan would receive nothing from the sales proceeds if the home were sold. Chapter 13 also can benefit a person who needs to make up an alimony or child support arrearage over several years or who owes back taxes after closing a business. 

Alternatives to Bankruptcy 

While declaring bankruptcy can be a solution for some people in financial distress, it is not the only option. Many alternatives, such as a consumer proposal, debt settlement and a debt management program, can also help you get back on track

financially. 

A consumer proposal combines your debts into one payment at a lower interest rate than what you would pay on separate credit cards or loans. It can be a good choice when you have valuable property that is exempt from sale and enough income to cover a repayment plan over 3-5 years. 

Debt settlement involves negotiating with creditors to settle your debt for less than you owe. It usually takes two or three years to accumulate enough funds to make an offer that a creditor will accept. It can be a better alternative to bankruptcy when you have equity in a home or vehicle, but it’s important to keep in mind that both options will impact your credit score for years to come. 

Contact Us 

If you’re struggling with debt, filing for bankruptcy can be a difficult decision to make. It’s important to consider all options and consult a bankruptcy attorney before taking any action. If you don’t have the funds to pay a bankruptcy attorney, there are organizations that provide pro bono legal assistance. 

The bankruptcy process can be complicated, and it’s not right for everyone. Bankruptcy isn’t a quick fix for financial problems, and it will affect your credit for 10 years. 

The first step is to get a free copy of your Experian credit report. This will help you determine if there are any outstanding debts that could be eliminated through bankruptcy. Next, you’ll need to take the required credit counseling and bankruptcy education courses. 

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