When facing overwhelming debt, bankruptcy can provide a way to start fresh. There are two main types of bankruptcy for individuals: Chapter 7 bankruptcy and Chapter 13. Your financial situation, especially your income, plays a big role in determining which type of bankruptcy is right for you.

Let’s explore how your finances impact your eligibility for Chapter 7 and Chapter 13 bankruptcy and find a reliable bankruptcy attorney in Rockport.

Understanding Chapter 7 Bankruptcy

Chapter 7 bankruptcy, or “liquidation bankruptcy,” allows you to discharge most of your unsecured debts, like credit card debt and medical bills. This means you won’t have to pay these debts back. However, some of your assets may be sold to pay off creditors.

Eligibility for Chapter 7 Bankruptcy

Your eligibility for Chapter 7 bankruptcy depends on your income and financial situation. Here’s how it works:

Means Test

The primary criterion is the means test, which evaluates your income against the median income for your state. If your income is lower than the median, you are eligible for Chapter 7 by default. If it’s above, you need to pass additional calculations to see if you have enough disposable income to pay off some of your debts.

Income and Expenses

Even if your income is higher than the median, you may still qualify if your necessary expenses (like rent, groceries, and medical costs) leave you with little disposable income.

Understanding Chapter 13 Bankruptcy

Chapter 13 bankruptcy, often referred to as “reorganization bankruptcy,” entails developing a repayment plan to address some or all of your debts over a period of three to five years. This option is for those who have a regular income but need help managing their debts.

Eligibility for Chapter 13 Bankruptcy

Your financial situation also affects your eligibility for Chapter 13 bankruptcy:

  • Regular Income:You must have a steady income to qualify for Chapter 13, as you’ll be required to make regular payments under a court-approved plan.
  • Debt Limits:There are limits on how much debt you can have to file for Chapter 13. As of 2024, you cannot have more than $2,750,000 in secured and unsecured debt combined.

A cup of coffee and some papers on the table

Which Option Is More Suitable for You?

The choice between Chapter 7 and Chapter 13 bankruptcy depends on your specific financial situation:

  • Low Income, High Debt:If you have a low income and a lot of unsecured debt, Chapter 7 might be more suitable. It allows you to eliminate most of your debts quickly, though you may lose some assets.
  • Regular Income, Need to Keep Assets:If you have a regular income and want to keep your home or car, Chapter 13 could be better. It allows you to catch up on missed payments and keep your property while paying off your debts over time.
  • Failed Means Test for Chapter 7:If you fail the means test for Chapter 7, Chapter 13 is your alternative. It provides a structured way to pay off debts without the immediate liquidation of assets.

Your income and financial situation play a crucial role in determining your eligibility for Chapter 7 bankruptcy or Chapter 13 bankruptcy. Hire a competent bankruptcy attorney in Rockport, like The Law Office of Joel Gonzalez, for exceptional services.

Call now to book an appointment.