Just as no two people's financial situation is the same, no two bankruptcy cases are the same. In fact, filing for Chapter 7 or 13 can vary greatly between filer. Before deciding on which to file, there are a few considerations that go along with a Chapter 7 case.
Your Income
Not everyone is eligible to file for Chapter 7 bankruptcy. In fact, there is a strict test that you must pass demonstrating that your income is not sufficient to repay your debts. Known as the means test, this test helps weed out the people that could repay their debts through Chapter 13 repayment plan. After all, your debts are your responsibility and although bankruptcy is a tool to help, it should not be abused.
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Your income becomes especially important if you are filing for bankruptcy as a married couple. In general, a joint filing will lead to a higher reported income between the two of you, which may disqualify you from eligibility. If the bulk of your debts are individual debts, you may want to consider filing separate from your spouse to increase the chances you qualify for Chapter 7. However, if your debts are mostly jointly held debts you may not be able to file separately.
Your Assets
The biggest issue of concern for most people is the fear of losing their assets in bankruptcy. In general, many of your assets could qualify for exemption from liquidation during the bankruptcy process thanks to generous bankruptcy exemption laws. There are some situations in which certain assets may be allowed to be liquidated by creditors in order to satisfy a debt. However, this does not mean that any of your assets will be seized and liquidated.
The risk of having a secured debt asset liquidated in bankruptcy is higher in a Chapter 7 case than a Chapter 13 case, whereby you repay your debts over time. Only a qualified bankruptcy attorney can help determine if any of your debts are at risk in your Chapter 7 case.
Your Credit
You might be surprised to learn that the bulk of the damage done to your credit happens long before you decide to file for bankruptcy. However, a Chapter 7 case may make it harder for you to obtain a good line of credit after bankruptcy more so than if you file for Chapter 13. The reason is that lenders prefer a borrower who met their previous debt obligations rather than had them eliminated, as in a Chapter 7 case. This does not mean you will be unable to repair your credit and move forward, just that you may have to work a bit harder to prove you are not a potential risk to lenders.
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