Struggling with debt? Chapter 7 may be the best option for you

Although the press has had many stories of economic recovery as of late, the reality is that may Utahns have yet to feel the effects of it. If you find yourself in this financially precarious position, you know that one unexpected expense can mean that you no longer have the means to pay your bills. For many people in your position, bankruptcy can help remedy their financial difficulties.

However, many individuals may have trouble choosing between Chapter 7 and Chapter 13 bankruptcy. The type of bankruptcy that would be best for you depends on your situation. If you are one of the many struggling with debt that have little or no income and few assets, Chapter 7 is often the better option.

The Chapter 7 process

During the Chapter 7 process, a bankruptcy trustee is appointed to sell your nonexempt assets and pay the proceeds of the sale towards your debts. This may sound like that it would put you in a worse position, but this is not the case. The trustee can only sell nonexempt assets-property that is not exempt from the sale by law. Under Utah bankruptcy laws, most of your important assets such as clothing, furniture and equity in a house or motor vehicle are exempt, so you do not lose them during the process. As a general rule, most people who qualify for Chapter 7 have little or no nonexempt property, so few lose any property.

After the sale has been completed, the bankruptcy court discharges most of your debt. Having received the discharge, you are no longer legally obligated to repay much of your debt that existed before you filed for bankruptcy. Debts such as credit card bills and medical bills are wiped out.

However, your secured debt-debt secured by collateral (e.g. mortgages and car loans)-is not wiped out. As a result, you must continue making payment of this debt to avoid foreclosure or repossession of the collateral. Fortunately, many find that they are more easily able to do this once Chapter 7 has relieved them of other types of debt.

Qualifying for Chapter 7

Unlike Chapter 13, there are no minimum income requirements in Chapter 7. However, those wishing to file for Chapter 7 must first pass a means test. Under the test, the court examines your disposable income, which is the income left over after you have paid your necessary living expenses. If your disposable income is too high, you may not qualify for Chapter 7 and have to file for Chapter 13 instead. Although the test sounds daunting, most debtors that are overwhelmed by debt do not have any trouble passing it.

Consult an attorney

Chapter 7 offers a main advantage over Chapter 13: the speed of the process. Most debtors that qualify for Chapter 7 can complete the bankruptcy process in as little as two to three months, compared to three to five years for Chapter 13. Although Chapter 7 may seem like the better option, it is not for everyone. If you are considering filing bankruptcy, it is advisable to do so only after consulting with an experienced bankruptcy attorney. An attorney can consider your financial situation and tailor a debt relief solution based on your goals and needs.