There are multiple types, or chapters, of bankruptcy available to people and businesses. Individuals filing for personal bankruptcy typically choose between Chapter 7 and Chapter 13 proceedings.
Both forms of bankruptcy provide an automatic stay and may lead to a discharge of eligible debts if the filing is successful. The requirements for each type of bankruptcy are slightly different, and personal circumstances influence which option is better. How do individuals who recognize that they need bankruptcy relief choose the option that works best for them?
Some people have just one option
To qualify for Chapter 7 bankruptcy, individuals must pass a means test where they adjust their income and then compare it to the state median income for their household size. If someone doesn’t pass the means test, then Chapter 13 bankruptcy may be the only option available to them.
Some must consider their property
If a person qualifies for Chapter 7 bankruptcy, then they need to consider whether they might be subject to asset liquidation requirements. Exemptions allow most people to protect all of their property and avoid asset liquidation.
However, some people have valuable assets that are at risk of liquidation. They may then need to consider the overall amount of debt they carry and whether Chapter 7 bankruptcy might cost more in asset liquidation than it provides in debt relief.
People struggling with debt but unsure of which form of personal bankruptcy option is better for them can benefit from legal guidance from the earliest stages of their bankruptcy cases. Reviewing financial records with a lawyer can be helpful for those who are uncertain about which type of bankruptcy to pursue.
