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Should I file for Chapter 7 or Chapter 13 bankruptcy?

When considering bankruptcy, it is important to know that there are typically two types of consumer bankruptcy that Maryland residents can pursue. These are Chapter 7 and Chapter 13 bankruptcy. While many people might have heard these terms before, they may be unfamiliar with the details or which type they even qualify for.

Only those who pass the means test — meaning they fall below a certain income level — qualify for Chapter 7 bankruptcy. This type of bankruptcy is usually quicker and somewhat more straightforward than Chapter 13. However, Chapter 7 is also referred to as a liquidation proceeding, as many of the filer’s assets could be sold to satisfy creditors. People can expect to hang on to certain exempt property.

Those who earn too much for Chapter 7 can file for Chapter 13, which is a process that usually lasts anywhere from three to five years. People who pursue Chapter 13 keep their valuable assets and instead create a repayment plan, subject to the court’s approval, to satisfy a portion of their debts. Any remaining qualifying debt leftover at the end of the payment plan is typically discharged.

Chapter 7 bankruptcies account for around 71% of all filings, meaning that many people who are struggling to keep up with debt are simply not able to earn enough. Even those who file for Chapter 13 face the problem of balancing debts against income. It does not matter whether one earns very little or what may seem like sufficient income — financial problems can hit anyone in Maryland. Deciding how to move forward with those financial problems can be the most important decision a person ever makes, so seeking guidance from an experienced party is usually well advised.

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