Many people in Michigan and throughout the country have been struggling financially in recent years. Some feel overwhelmed by medical bills or credit card debt. Others unexpectedly lost their jobs or went through divorce, resulting in a financial crisis. There are several types of bankruptcy that often help people alleviate debt and start afresh to get things back on track.
It is possible to qualify for one type of bankruptcy but not another. It is important to explore options ahead of time to determine which program best fits a particular person’s needs and ultimate financial goals. Chapter 7 and Chapter 13 bankruptcy are two of the most common types of debt relief that individuals or homeowners use to resolve debt problems.
Chapter 7 bankruptcy eligibility depends on income
A person considering filing for Chapter 7 bankruptcy must take a means test. This is an assessment test that compares a person’s income level to the average income level throughout the state. If it is at or above a specific amount, Chapter 7 would not be a viable option. Those who qualify for this type of bankruptcy can expect liquidation of their assets, with the proceeds used to pay back creditors.
Chapter 13 is often referred to as a wage earner’s bankruptcy
If a person has a reliable form of income that is the same or more than the state average, he or she may be eligible for Chapter 13 bankruptcy. Rather than liquidating assets, Chapter 13 enables a person to restructure his or her loan payment plans or extend the life of a loan, based on a reorganization plan submitted to the court for approval. Income is then used to continue making payments. Under this program, a person is often able to retain ownership of a house, vehicles and other primary assets. It is helpful to speak to someone who is well-versed in bankruptcy law before filing a petition.