Make an informed bankruptcy choice
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The two options consumers can choose between for Greensboro bankruptcy are Chapter 7 and Chapter 13. As long as you earn a steady wage, you should qualify for Chapter 13. To file Chapter 7, you must earn below a certain income threshold or pass the Means Test. The Means Test assesses your debt, income, and expenses to determine if you can pay your debt without bankruptcy intervention. You can still earn a high wage and qualify so long as your debt outstrips your ability to pay. But what is very important when choosing a chapter is the type of debt you have.
Three Types of Debt to Consider
Chapter 13 is often better for people with a greater mix of debt types while Chapter 7 often serves Greensboro consumers better who have a simpler debt situation, but your choice will also depend on the chapter(s) for which you can qualify and your financial goals. Here are the three primary types of debt to consider:
Secured debts – As the name implies, the debt is “secured” by something. For a mortgage, the debt is secured by a lien on the home. For an auto loan, the collateral is the vehicle itself. Small business loans may be secured by your home or other property. With jewelry loans, the item might be written into the financial contract as the collateral.
Unsecured debts – As you can guess, these debts are not tied to an asset that can be foreclosed on or repossessed if you don’t pay what you owe. Examples of unsecured debts include credit cards, medical bills, back rental payments, signature loans (i.e., personal loans with no collateral), income taxes, student loans, and more.
**Note – Although income taxes and student loans are unsecured debt, they are treated differently in bankruptcy. If the tax debts are older and you met the filing requirements, they may be dischargeable. To deal with student loans, a second legal action called an Adversary Proceeding must be filed, and you must prove that paying the debt would cause you undue hardship.
Priority debts – These are debts that take priority even though they are technically unsecured. These include, as mentioned above, recent income taxes, taxes you might owe for employment if you run a small business, child support, spousal support, and some court fines and fees. These are a bit more complex in how they affect your bankruptcy case.
Chapter 7 Is Good for Unsecured Debt
If all your debts are unsecured debts as listed above, Chapter 7 may give you the best results. It only takes three to four months to complete this type of Greensboro bankruptcy, and you can walk out with a clean financial slate with no credit cards, medical bills, signature loans, old utility bills or delinquent rent payments looming.
For those that also have secured debt such as an auto loan or mortgage, so long as you are current on those payments, but have only fallen behind on your unsecured debt, Chapter 7 might be a fit for you as well. When it comes to priority debts, if discharging your other debts frees up enough cash to cover child support, income taxes, etc., Chapter 7 may be feasible.
Chapter 13 Is Good for Secured Debt
If you’re behind on your secured debt such as your car loan or mortgage and want to keep the asset, filing Greensboro Chapter 13 sets you up on a debt repayment plan. Then you have three to five-years to catch up on the past due balance while also keeping up with your current monthly payments. You may also qualify to mitigate some of this debt in Chapter 13.
Those with a second (or third) mortgage on their home might be able to “strip off” these debts if you don’t have enough equity in the home to support the loan. With a car loan, if the loan is a few years old and you owe more than it’s worth, you may be able to reduce the balance to fair market value and also get a lower interest rate.
To find out which type of bankruptcy is a fit for your debt circumstance, contact the Law Offices of John T. Orcutt. Read reviews from our clients then call 1-888-234-4181 today for a free Greensboro bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.