What type of bankruptcy should I file?

Most people have one of two options for debt relief through bankruptcy- a Chapter 7 or Chapter 13 petition. In a Chapter 7 bankruptcy, almost all your debts are discharged. In exchange for this discharge, the bankruptcy trustee can take any property you own that is not exempt from collection, sell it, and distribute the proceeds to your creditors. What property is exempt from collection depends primarily on state law. Typically, exemptions include some equity in your home and car, retirement funds, public benefits, and most household goods, furniture, furnishings, clothing, appliances, books, and musical instruments. A Chapter 7 bankruptcy petition is much faster and can be completed within four months. To be eligible to file a Chapter 7 bankruptcy, you must pass an income means test- your income (averaged over the last 6 months) must be less than the state median income. But an income above the state median will not automatically disqualify you. If you are close to the state median income, you may be able to deduct certain expenses to reduce your income to the state median.

A Chapter 13 bankruptcy petition requires a repayment plan that lasts for a minimum of 3 years. It allows you to keep your home and possibly strip back second mortgages if your home is underwater.


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