Whether you should file for Chapter 7 bankruptcy or a Chapter 13 bankrupcy depends on a lot of things: your income level, the type of debt you owe, how much property you own, and if you are at risk of losing vital services, like power, shelter, or transportation.
Chapter 7 bankruptcy is total liquidation bankruptcy. That means you give up everything that either the Federal Government or your state deems “non-exempt” to pay your creditors. In exchange, you walk away debt-free. However, bankruptcy rules passed in 2005 narrowed the eligibility for this type of bankruptcy to only those who earn at or below their state’s median income level depending on family size. If you don’t pass this means test, then you are considered able to pay off your debts in a Chapter 13 bankruptcy payment plan.
Even if you pass the means test, there’s still not a guarantee you’ll qualify for Chapter 7 bankruptcy. If the debt you owe is child support, alimony, criminal judgments, DUI damages, taxes, or federally backed school loans, you will not qualify for discharge under bankruptcy. These debts are not eligible for any kind of discharge, and you will have to pay them.
Property can also be a hurdle to filing Chapter 7 bankruptcy as opposed to Chapter 13. Chapter 7 bankruptcy will not protect very much personal property. Most property outside of modest, vital belongings will be considered non-exempt and become property of the trustee. If you own additional homes, vehicles, or other real estate or valuable assets, Chapter 13 offers more protection for those assets—as long as you stick to the payment plan.
Chapter 7 bankruptcy is very effective and helpful if you are about to lose your home, car, or basic utilities due to debt collection activities. The “automatic stay” takes effect as soon as you file, and stops all collections activities for the duration of your case. This can give you time to make back payments on homes or cars and regain control of your exempt assets while your other debts are discharged in bankruptcy.
Over the past 30 years, the Law Offices of Christopher A. Benson has helped over 2,300 of Washington clients take control of their financial situation. We can stop your garnishment and change your monthly payments for all your combined unsecured debt, and if you have had more than $600 garnished within the last 90 days, we can get all of the money back in most cases. But you have to act quickly–call (253) 815-6940 for your free consultation, or email us today. Evening and weekend appointments available.
About the Author
Chris served on the Board of Directors for Habitat for Humanity
Seattle/S. King County for 10 years and served as Vice President
of the organization during part of that time. Read More