Is Bankruptcy Right for Me? Ask an Attorney.

Understand Your Options With Attorney Joseph P. Doyle

If you are besieged by creditors and are struggling to pay your debts, you may be a candidate for bankruptcy. The federal law allows debtors to start over financially, and to get rid of or restructure certain types of debt. Your first step is to determine if bankruptcy is the right move for you.

Many people who consider bankruptcy are dealing with:

• Credit card debt with high interest rates
• Mortgage problems that arise when payments are ballooned
• Divorce-related financial issues due to legal fees and income splitting
• Businesses that are in the red or nearing it

To make an informed decision regarding bankruptcy, you need a general understanding of what each type of bankruptcy does and for whom it is intended.

Who Chapter 7 Bankruptcy Is For

Chapter 7 is the type of bankruptcy that involves liquidation and a release of personal liability for dischargeable debts. Chapter 7 bankruptcy actually has a built-in method for informing individuals whether it is right for them. That method is called the “means test,” and everyone who wishes to file Chapter 7 bankruptcy has to take this test first to see if they qualify. The means test is designed to prevent people with too high an income from using this method of protection.

• View the Official Chapter 7 Means Test Form

The means test will calculate various aspects of your income and necessary expenses to determine if you qualify for Chapter 7. Overall, the Chapter 7 bankruptcy is intended for those who[1]:

1. Can pass the means test;
2. Are individual debtors who need a discharge of debt;
3. Have not, in the preceding 180 days, had a bankruptcy petition dismissed due to willful failure to appear before the court or comply with its orders;
4. Have, in the preceding 180 days, received credit counseling from an approved credit counseling agency;
5. Are not filing solely to get rid of a lien on a property, because Chapter 7 cannot extinguish this;
6. Need relief from creditors attempting to take collections;

According to the U.S. Courts, individual debtors who pass the means test requirements usually receive a discharge within 60-90 days. More than 99% of these cases are granted.

Who Chapter 11 Bankruptcy Is For

Chapter 11 is reorganization bankruptcy, and it is typically used by commercial enterprises[2].

Chapter 11 is generally intended for:

1. Typically businesses who wish to continue operations while they reorganize their debts in order to be able to pay back creditors;
2. Those who have not, in the preceding 180 days, had a bankruptcy petition dismissed due to willful failure to appear before the court or comply with its orders;
3. Those who have, in the preceding 180 days, received credit counseling from an approved credit counseling agency;
4. Those who are able to file a list of assets and liabilities, a schedule of current income and expenditures, a schedule of executory contracts and unexpired leases, and a statement of financial affairs.
5. Those who need relief from creditors attempting to take collections;
6. Those who can file a debt repayment plan between 120 days and 18 months.

Who Chapter 13 Bankruptcy Is For

Chapter 13 has been coined the “wage earner’s plan” and involves adjusting the debts (rather than discharge/liquidation) of those who earn a regular income. If you don’t want to risk losing your property and you want to attempt to repay your debts over time, Chapter 13 bankruptcy may be right for you.

Chapter 13 is generally intended for[3]:

• Individuals who earn a regular income;
• Individuals who want to develop a plan to repay all or part of their debt;
• Individuals who can commit to repaying creditors over a 3-5 year period;
• Individuals who do not qualify for Chapter 7;
• Individuals who want to save their homes from foreclosure;
• Individuals who want to avoid liquidation of their assets;
• Individuals who want to protect third parties who may also be liable for their debts, such as co-signers;
• Individuals who want to avoid direct contact with creditors;
• Individuals whose unsecured debts to not exceed $383,175 and whose secured debts do not exceed $1,149,525.

Collateral Consequences of Bankruptcy

Before you decide whether bankruptcy is right for you, you may want to familiarize yourself with the collateral consequences, such as what bankruptcy does to your credit and how it could affect your ability to finance a car, take out a business loan, and more.

Bankruptcy can have the following consequences:

• If you file for Chapter 7 bankruptcy, some of your assets will be liquidated. Some Chapter 7 debtors lose their homes if they have a substantial amount of equity that can be used to pay creditors;
• It can impact your credit score for up to seven to ten years, although you can begin to work on improving that score immediately after filing for bankruptcy;
• It could make it more difficult to obtain new lines of credit, or at least limit the amount of credit you can be extended.

When In Doubt, Consult an Attorney.