Knowing that you have insurmountable amounts of debt that you cannot pay off can leave you with a sinking feeling. In some cases, the debt can feel so overwhelming that some people will simply choose to ignore it – a decision that tends to have adverse consequences. If you are facing large amounts of debt and aren’t sure where to turn, filing for bankruptcy may be the best option. To learn more about filing for a Chapter 7 or a Chapter 13 bankruptcy in Virginia, please reach out to our experienced bankruptcy lawyers at the Law Office of Steven D. Barnette, P.C. today. We can represent you during your bankruptcy case and provide you with the answers you need.
When Should I File for Bankruptcy?
Filing for bankruptcy can provide relief and a clean slate, but that doesn’t mean that it should be the first option you turn to when struggling with debt; instead, it should be a last-resort option. Before you file for bankruptcy, it’s smart to work with an attorney or a financial professional to consider your other options, such as debt consolidation, refinancing your mortgage or another loan, negotiating a repayment plan with creditors, debt counseling, etc. Only when these options are not practical or have failed should you think about filing for bankruptcy.
It’s also important to remember that filing for bankruptcy is not without consequences. While it may sound very appealing to file for bankruptcy and have some of your debts forgiven, note that filing for bankruptcy will significantly impact your credit score and will remain on your credit report for seven to 10 years. Filing for bankruptcy can make it very difficult to obtain a loan or line of credit in the future, crippling your efforts to start a business, buy a home, etc.
Before you file for bankruptcy, be sure to consult with a professional who can review your case and ensure that filing for bankruptcy is the best option for you moving forward.
Types of Bankruptcy for Individuals
If filing for bankruptcy is indeed the best option, then there are two types of bankruptcy for individuals that are most common: Chapter 7 and Chapter 13 bankruptcy. It is important that you understand the differences, advantages, and disadvantages of each before filing, as well as which one you may qualify for.
Chapter 7 Bankruptcy
Also called a liquidation bankruptcy, a Chapter 7 bankruptcy is the type of bankruptcy filing that most people think of when they think of bankruptcy. That’s because in a Chapter 7 bankruptcy, a debtor’s non-exempt assets are liquidated and the proceeds are used to pay creditors; then, a few months after your petition for bankruptcy is filed and approved, your eligible debts will be discharged, which means that they will be wiped away. Note that while many types of debts are eligible for discharge, many are not. For example, student loan debt cannot be discharged (forgiven) in a Chapter 7 bankruptcy filing.
Chapter 13 Bankruptcy
While Chapter 7 is the easiest and quickest form of bankruptcy, it may not be the most advantageous; a Chapter 13 bankruptcy tends to offer more benefits. In a Chapter 13 bankruptcy, a debtor forms a plan with their creditors to repay a portion of their debts (or all of their debts) over a three-to-five-year plan. While repaying your debts may not sound as attractive as having your debts forgiven, there are some major benefits to filing for a Chapter 13 bankruptcy, including that you may be able to keep your home and other assets by filing a Chapter 13 bankruptcy, and that a Chapter 13 bankruptcy won’t stay on your credit report for as long as a Chapter 7 will.
How to Decide Between a Chapter 7 or Chapter 13 Bankruptcy
When it comes down to it, the choice between filing a Chapter 7 and a Chapter 13 bankruptcy may not be yours to make. This is because each has certain eligibility requirements and, if you don’t satisfy the eligibility requirements of one, your only option may be to file for the other.
For example, in order to file for a Chapter 7 bankruptcy, you must pass the means test. This is a test to determine whether or not you have the means to file for a Chapter 13 bankruptcy. The means test looks at your income, assets, and expenses to determine whether or not you have disposable income that could be used to pay off your debts. The first part of the means test considers whether or not your household income is below the state’s median. If it is, you pass. If it’s not, then “allowable expenses” will need to be calculated. An attorney can help you to understand the means test and whether or not you qualify. If you make too much money or have too much disposable income, you’ll be barred from filing for a Chapter 7 bankruptcy.
The other option is to file for a Chapter 13 bankruptcy, but this too has eligibility requirements. In order to file for a Chapter 13 bankruptcy, you’ll need to prove that you have a steady income that will allow you to meet your monthly expenses and also enter into a repayment plan to pay off your creditors. You’ll also need to be sure that you meet the debt limits for unsecured and secured debts, which are $394,725 and $1,184,200, respectively.
Both Chapter 7 and Chapter 13 bankruptcies require the debtor to undergo credit counseling from an approved provider before filing. Additionally, both types of bankruptcy filings will trigger the automatic stay – this means that at the time a debtor files their petition for bankruptcy, any creditors will be automatically barred from proceeding with collection actions while the case is pending.
Call Our Virginia Bankruptcy Lawyers Today
If you are thinking about filing for bankruptcy and need help navigating the process, our experienced Virginia bankruptcy lawyers at the Law Office of Steven De. Barnette, P.C. are here to support you. Call us today or send us a message for your initial consultation.