If you are suffering under a mountain of debt with collection agents hounding you day and night, then the only option you may have to end that stress is to file for bankruptcy. The protection that bankruptcy offers can be a life saver to people who have fallen on hard times. The creditors will stop calling, foreclosure proceedings will be halted, and gives you a chance to make a fresh start. But just as important as making the decision to file for bankruptcy is determining which one is the best option for you, Chapter 7 or Chapter 13. A Chapter 7 bankruptcy filing is a petition to the court to eliminate all eligible debts on the table. This type of filing is actually called a liquidation bankruptcy because some of your assets may be sold to pay creditors. A Chapter 13 filing is a request to reorganize the petitioner’s debts. This type of filing is called a reorganization bankruptcy, or wage earners plan, because you pay a monthly amount set by the court and that money is disbursed to creditors. You can take up to five years to pay off all your debt under this plan. The most common type of filing is a Chapter 7 and with good reason. With the ability to completely wipe the slate clean, this option offers people a way to completely start over anew. However, there are a couple of drawbacks to this option. First, you have to wait eight years before you can file another liquidation bankruptcy. Second, there is a means test you have to pass in order to qualify. Basically, your yearly income must be less than the state median income. If it is over that amount then you may be forced into filing a Chapter 13. Lastly, you may have to sell assets that exceed the protection of the law.
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