By Dennis L. Plank, Attorney
Some Lancaster County residents are struggling to keep up with debt payments. The economy has been tough on everyone, which means some people have missed mortgage payments, car payments, or credit card payments.
Filing for bankruptcy provides an opportunity for some people to get a fresh financial start. For most situations, filers can decide between Chapter 7 and Chapter 13 bankruptcy. Chapter 7 focuses on debt forgiveness. In contrast, Chapter 13 revolves more around restructuring and paying off the debt. Here is a look at each option in detail.
Before filing for bankruptcy, Lancaster residents should consider speaking to a qualified attorney. A bankruptcy attorney will look at the person’s financial position and consider all important factors like debt type, individual income, and interest rates.
A legal expert will help them see if they are qualified to declare bankruptcy and help them determine which type of bankruptcy makes the most sense for their situation. Chapters 7 and 13 are two types of bankruptcy designed for individuals. Businesses and farms will have to consider other options.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy focuses on restructuring or eliminating personal debt. This legal tool is a liquidation bankruptcy based on forgiving debt. In many cases, some or all debt can be eliminated if the filer qualifies. Chapter 7 bankruptcy also enacts an automatic stay that prevents further collection activity from creditors.
Chapter 7 may be a good option to deal with debt if:
- The debt is unsecured. Bankruptcy makes it possible for debtors with personal loans, credit card bills, or medical bills to get significant debt relief through repayment plans or even forgiving debt.
- The filer earns less than the median wage. The median income for any person working in Pennsylvania is $63,463. Anyone earning less than that amount has an advantage when applying for Chapter 7 bankruptcy.
- The filer must complete credit counseling and demonstrate residency to qualify for Chapter 7 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a reorganization bankruptcy. When filing for Chapter 13, the individual will work with the court to create a repayment plan to eliminate debt over time. Notably, a primary home and primary vehicle are protected.
Chapter 13 bankruptcy can be a good choice if:
- The filer is facing possible foreclosure. Chapter 13 allows the filer to reorganize and negotiate debts and creates a repayment plan that lasts three to five years. A third party usually handles these repayments.
- The filer can’t satisfy debts by selling non-essential assets.
A qualified bankruptcy lawyer can help determine qualifications for each type of bankruptcy and help filers decide which assets are eligible for protection.
Who Doesn’t Qualify for Bankruptcy?
Bankruptcy can help reorganize or eliminate many types of debt, but some types are not covered. For example, if a person’s debt is primarily from student loans, bankruptcy will not forgive those debts. There are a few exceptions, but they are rare.
Additionally, bankruptcy does not forgive taxes, alimony, or child support. Bankruptcy can provide relief and reorganize debt to make repayment in these areas possible, but it does not eliminate that debt or those types of ongoing obligations.
Is It Time to Contact Going and Plank?
Before declaring bankruptcy, it is essential to understand the differences between Chapter 13 Bankruptcy and Chapter 7 Bankruptcy and the benefits and drawbacks of each legal solution. Not everyone qualifies for filing, and filing does not guarantee that the courts will grant bankruptcy.
For some people, bankruptcy offers a chance to reset and begin a new financial journey with a cleaner slate. To find out more, contact Going and Plank to review debt relief options and see if you’re eligible to set a path for a better financial future.
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