How Do You Determine Which Chapter of Bankruptcy Fits Your Situation?

Bankruptcy is a legal process that helps individuals and businesses struggling with debt begin anew by wiping out or reorganizing their debt. A bankruptcy filing can be a lifesaver if you are overwhelmed by debt. In Tucson, Arizona, there are several options for individuals and businesses considering bankruptcy, including Chapter 7, Chapter 11, Chapter 12, and Chapter 13. Each chapter is designed to address different types of financial situations, and it is essential to understand the differences to determine which chapter best fits your situation.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the most commonly filed type of bankruptcy in Arizona. In this type of bankruptcy, your assets are sold or liquidated, and then the proceeds from the sales are used to pay off your creditors. You can keep your primary residence, car, and retirement accounts. The eligibility criteria for Chapter 7 bankruptcy is that you must pass the means test, which determines if you have enough disposable income to repay your debts.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is typically utilized by companies, although it is also available to individuals. This bankruptcy type allows one to restructure debt and continue operating their business. It is more complex and expensive than other types of bankruptcy and is usually not the best choice for individuals with too much debt that they are struggling to pay.

Chapter 13 Bankruptcy

In Chapter 13 bankruptcy, you can reorganize or restructure your debts and repay them over three to five years. The restructuring enables you to make affordable monthly payments based on your income. Unlike Chapter 7, you can keep your assets in Chapter 13. However, you must have a regular source of income to amortize the payments, and your debts must fall within certain limits.

Chapter 12 Bankruptcy

Chapter 12 bankruptcy is specially designed for family farmers and fishermen. It is similar to chapter 13 but contains more favorable provisions for these groups. The family farmers and fishermen can restructure their debt and continue operating their businesses.

Factors to Consider When Determining Which Chapter of Bankruptcy Fits Your Situation

To determine which chapter of bankruptcy fits your situation in Arizona, you must consider several factors. Your financial situation, the type of debt you have, and your income, among other factors discussed below, will all play a role in determining which chapter is the best fit for you.

Your Income

Your income is an essential factor to consider when determining which chapter of bankruptcy fits your situation. For example, to be eligible for Chapter 7, you must pass the means test, which determines whether you have the financial means to repay your debts. If you fail the means test, possibly because you have too much disposable income, you may qualify for Chapter 13 bankruptcy. Your income will determine the monthly payment amount in a Chapter 13 bankruptcy.

The Amount of Debt

The amount of your outstanding debt will determine which chapter of bankruptcy is best suited for your financial situation. If you have a large debt, a Chapter 13 bankruptcy may be a better option as it allows you to repay your debts over a longer time. However, you need a consistent source of income, as Chapter 13 calls for regular monthly payments. If you do not have a regular income source and cannot make monthly payments, a Chapter 7 bankruptcy may be a better option.

The Type of Debt You Have

The primary categories of debt are secured and unsecured types. Secured debt is backed by collateral. In cases of non-payment, the creditor can use the asset as collateral through repossession or foreclosure. In contrast, unsecured debt is not backed by any collateral and may be discharged in bankruptcy. The type of debt you have will affect the chapter of bankruptcy for which you are eligible. If you have a lot of unsecured debt, Chapter 7 may be a good option for you as it wipes out most unsecured debts.

The Value of Your Assets

Assets include all your property, such as your home, vehicle, and personal possessions. The value of your assets will affect which chapter of bankruptcy you are eligible for and which assets you can keep.

Contact an Experienced Bankruptcy Attorney in Tucson, Arizona Today

If you are unsure which chapter of bankruptcy fits your situation in Arizona, look no further than the confident and experienced Tucson bankruptcy attorney Eric Ollason and his office today. Call us at (520) 389-5241, and we can review your financial situation and help you determine the chapter of bankruptcy that fits you best.