Generally speaking, individuals can file for bankruptcy under either Chapter 13 or Chapter 7. In rare cases, an individual may be forced to file under Chapter 11, but that is exceedingly rare. Danville bankruptcy attorney Chris Arrington will discuss the key differences between Chapter 7 and Chapter 13 and when you might want to file under either. 

Chapter 7 bankruptcy

Your first step in determining which chapter of bankruptcy to file under is whether or not you qualify for Chapter 7. The majority of individuals who file for bankruptcy do so under Chapter 7. This is because Chapter 7 offers the most protection from creditors. You can discharge all unsecured debts that you owe under Chapter 7, but first, you have to pass the means test. 

There are two ways to pass the means test. If your income is at or below the Indiana state median income for your household size, then you automatically pass the means test. If your income is above the state media, then you may still pass the means test if you can prove you cannot repay your debts. At present, the state median income for a single-person household is $41,250. If you can file under Chapter 7, then that is likely your best option.

Chapter 7 is good for one thing: Discharging unsecured debt. So, if your debt is in the form of credit cards or medical bills, Chapter 7 would be ideal for you. 

One thing to bear in mind, however, is that Chapter 7 hurts your credit score more than a Chapter 13 bankruptcy filing would. This is because the hit to your credit score is related to the amount of debt you discharge. In a Chapter 13 bankruptcy, you do repay some of your debt to your unsecured creditors. However, Chapter 13 is better for handling other types of debt, such as debt backed by collateral. 

Chapter 13 bankruptcy

Instead of an income limit like Chapter 7, Chapter 13 places a cap on the amount of money you owe. To file under Chapter 13, you must present a repayment plan to the court. Your debts are arranged in accordance with a hierarchy in which priority debts and secured debts are the most important. Unsecured debts are the least important, and creditors generally only receive a fraction of the repayment value of the debt. 

Chapter 13 is ideal for those facing foreclosure or a repossession of their automobile. It also does significantly less damage to your credit score than a Chapter 7 filing would. In addition, if you need to file for bankruptcy again, there is a shorter waiting period with a Chapter 13 than there is a Chapter 7. 

Talk to a Danville, IN, Bankruptcy Attorney Today

Danville, IN, bankruptcy attorney Chris Arrington represents the interests of those who have unmanageable debt. Call our office today to schedule an appointment, and we can discuss what chapter of bankruptcy meets your needs.