The vast majority of personal bankruptcy filers opt for either a Chapter 7 or a Chapter 13. If you are considering filing for bankruptcy, you will more than likely be filing a Chapter 7 or Chapter 13. Which bankruptcy is right for you? There is no “one-size-fits-all” answer to this question. The “right” answer comes down to the types of debts you have, your income, and how much you owe.
About Chapter 7 Bankruptcy
With a Chapter 7 bankruptcy, the debtor is able to “wipe out” many types of debts, such as credit card debt, past-due medical bills, utility bills, cellphone bills, and personal loans. However, not all debtors qualify for a Chapter 7.
Chapter 7 bankruptcy is reserved for low-income debtors who really need it. In order for a debtor to qualify for Chapter 7, they must pass the bankruptcy “means test.” With the bankruptcy means test, the debtor’s income is compared to the state’s median income for a household of their size.
If the debtor’s income is below Pennsylvania’s median income for a household of their size, the debtor automatically qualifies for a Chapter 7. If the debtor’s income is too high, he or she will be referred to a Chapter 13, debt reorganization bankruptcy, instead.
About Chapter 13 Bankruptcy
Chapter 13 is a debt reorganization bankruptcy where the debtor pays off all, or a portion of their debts over a 3 to 5-year time period. The terms of the bankruptcy repayment plan are governed by the debtor’s available disposable income each month after necessities are paid.
Chapter 13 is also utilized by debtors whose homes are threatened by foreclosure. Chapter 13 offers homeowners a way to keep their home as long as they are able to catch up on their past-due mortgage payments and continue paying them throughout the life of the bankruptcy.