Financial setbacks can happen to anyone. While some people can recover from them quickly, others have difficulty managing the debts they incur from them. If you are struggling to pay off past-due bills, you may feel ready to file bankruptcy. Yet, you may not know where to begin. By understanding the differences between Chapter 7 bankruptcy and Chapter 13 bankruptcy, you can determine which one makes sense in your situation.
Understanding Chapter 7 bankruptcy
Chapter 7 bankruptcy is also known as liquidation bankruptcy. As part of your case, you will surrender your property to a bankruptcy trustee. The bankruptcy trustee will then sell this property and satisfy your creditors with the proceeds.
Many people fear that they will lose most of – if not all – their property during Chapter 7 bankruptcy. Yet, Missouri allows you to exempt certain assets from your bankruptcy case. Your ability to protect these assets, though, is contingent on their value.
Keep in mind that you must pass a means test to qualify for Chapter 7 bankruptcy. To pass this test, your income – being your average monthly earnings over the past six months – cannot exceed the median income for the size of your household in Missouri. You may also pass the means test, though, if you do not have enough disposable income to repay your debts.
Understanding Chapter 13 bankruptcy
If you file Chapter 13 bankruptcy, you will repay your debts, following a plan, over a period of three to five years. So long as you adhere to your plan’s terms, you will be able to keep your property. Once you complete your plan, you may also be able to discharge your remaining unsecured debts.
While Chapter 7 bankruptcy places income limits on filers, Chapter 13 bankruptcy has debt limits instead. To qualify for it, your secured debts must be no greater than $1,257,850, and your unsecured debts must be no greater than $419,275.
Though bankruptcy will likely provide you financial relief, moving forward with filing is not a decision to make lightly. An attorney can help you understand whether filing Chapter 7 bankruptcy or Chapter 13 bankruptcy will make the most sense in your situation.