Why Chapter 7 Bankruptcy is Not Always the Right Choice

Every person’s financial situation is unique, and there is no one-size-fits-all solution for debt relief. Many consumers may believe that Chapter 7 bankruptcy is the best option, as it allows you to discharge many debts without first following a repayment plan for three to five years. However, while the prospect of a repayment plan may seem undesirable, there are some situations in which Chapter 13 bankruptcy may be a better option than Chapter 7.

You Do Not Qualify for Chapter 7

While  Chapter 7 makes it relatively simple to discharge your debts, it does not make it easy to qualify for a case. In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which aimed to protect consumers from financial harm. However, the Act made it more difficult for consumers to qualify for Chapter 7 bankruptcy.

To qualify for Chapter 7, you must pass the “means test.” This test compares your household income to the median household income for your state, as reported by the Department of Justice (DOJ). For instance:

• You have four people in your household in Merrillville, and your household income is $90,000 per year after expenses
• The DOJ reports that the 2019 median income for a family of four in Indiana is $85,368
• Because your household income is higher than the median, you would not qualify for Chapter 7 bankruptcy

If you cannot pass the means test, you will need to explore other options, and Chapter 13 can still be highly beneficial when it comes to debt relief. You want to ensure you have an attorney working for the fairest Chapter 13 repayment plan possible based on your income. 

Protecting Property and Assets

In exchange for the relatively easy discharge of your debts, Chapter 7 bankruptcy does require you to relinquish certain property and assets for liquidation, and the proceeds go to priority creditors. There are many exemptions that allow you to protect property and assets from the bankruptcy trustee, and in many cases, a skilled attorney can apply exemptions in a manner that protects most if not all of your property.

However, some people do not have the extra income to pay all their debts, but they do have significant property or assets they want to protect. This can involve a high-value home, vacation properties, vehicles, heirlooms, and more. If you want to keep your nonexempt property, Chapter 13 will allow you to do so and still obtain bankruptcy relief. 

Consult with a Merrillville Chapter 13 Bankruptcy Attorney for Free

Determining the best type of bankruptcy in your situation is a difficult choice that should be carefully considered. You should always have an experienced bankruptcy lawyer in Northwest Indiana evaluate your case and advise you of your best options. Whitten & Whitten helps many clients find the financial relief they need through all types of bankruptcy, including both Chapter 7 and Chapter 13. Contact us to set up a free consultation and to start taking back control of your financial situation.