The different kinds of bankruptcy each have drawbacks and benefits. Individuals usually need to choose between Chapter 7 and Chapter 13 bankruptcy unless they also own and operate a small business or farm.
Chapter 13 bankruptcy is easier to qualify for, but it requires a three-to-five-year repayment plan for unsecured debts that are eligible for discharge. If you don’t want to spend years making payments to your creditors before the court discharge your debts, then Chapter 7 bankruptcy may seem more attractive to you than Chapter 13.
The basics of Chapter 7
Also known as liquidation bankruptcy, Chapter 7 proceedings require that someone sell some of their assets to repay creditors. They can, however, exempt property, including some equity in their home, from such obligations. Any property they can not exempt will be subject to liquidation, a process managed by the court-appointed trustee overseeing their case.
Chapter 7 bankruptcy is relatively quick, with a discharge of unsecured debts happening just months after someone files paperwork. Of course, not everyone struggling with too much debt or aggressive collection activity qualify for Chapter 7 bankruptcy. They have to pass a means test that compares their adjusted income to the state medium.
How much can you make and still qualify for Chapter 7 bankruptcy?
The number of people in your family impacts how much income you can earn and still qualify. As a single person without children, you can earn up to $53,687 and file for Chapter 7 bankruptcy. Two-person households can have an income of up to $70,000. The income limit is $76,368 for three-person households and $94,269 for four-person households. Bigger families can add another $9,000 for each additional family member.
Adjusting your income can be a challenge. Many people hoping to file for Chapter 7 bankruptcy find themselves right on the cusp of qualifying. These individuals may benefit from outside help, as it is easy uncommon for people to make mistakes in the process of adjusting their income.
Even if you don’t qualify for Chapter 7 bankruptcy, Chapter 13 bankruptcy can still lead to the discharge of your debts after you complete your repayment plan. Learning more about Chapter 7 bankruptcy in particular can help you determine if it is the right solution for you.