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Reasons to choose Chapter 7 vs. Chapter 13 bankruptcy

After making the decision to pursue the path of bankruptcy for debt relief, individuals in Washington are then faced with the decision of which form of bankruptcy fits their unique financial positions best. For personal bankruptcies, two of the most common options are Chapter 7 and Chapter 13. There are many factors to consider when choosing between these two routes, some of which are outlined in a recent article.

First, filing for Chapter 13 bankruptcy can be appropriate if someone is not eligible to file for Chapter 7. Eligibility for Chapter 7 requires a "means test," which means that a person's average monthly income for the six months previous to filing must be equal to or less than the median income in his or her state. If the average is greater, and it is determined that a person has some disposable income to pay off debts, he or she would not be not eligible for Chapter 7.

Another factor that a person may consider is whether they wish to save their home from foreclosure. If so, filing for Chapter 13 can stop a foreclosure permanently as long as the person has not filed for bankruptcy in the previous two years. With Chapter 7, keeping a home is less likely. Additionally, it may be better to file for Chapter 13 if a person has a significant amount of debt that is not dischargeable under Chapter 7. Nondischargeable debts under Chapter 7 includes things such as court fees, HOA or other condominium fees and marital debts that have been agreed upon in a settlement agreement.

Conversely, one of the main reasons to file for Chapter 7 is if a person is unable to repay his or her debts, even with a repayment plan. Chapter 7 can also be appropriate if a person is seeking quick relief from creditors, and/or if most of his or her debt is dischargeable. It can take as little as three months to receive a discharge order from a bankruptcy court after filing for Chapter 7.

Each bankruptcy can differ based upon a person's unique financial position. Most in Washington who determine that bankruptcy is the right path for them contact an attorney who focuses on bankruptcy law. An attorney will be able to properly evaluate a client's case, and discuss whether Chapter 7 or Chapter 13 may be the right fit.

Source: FindLaw, "Chapter 13 vs. Chapter 7 Bankruptcy", Accessed on Nov. 30, 2016

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