Is Bankruptcy Right for Me? Ask an Attorney.

Understand Your Options With Attorney Joseph P. Doyle

If you are besieged by creditors and are struggling to pay your debts, you may be a candidate for bankruptcy. The federal law allows debtors to start over financially, and to get rid of or restructure certain types of debt. Your first step is to determine if bankruptcy is the right move for you.

Many people who consider bankruptcy are dealing with:

• Credit card debt with high interest rates
• Mortgage problems that arise when payments are ballooned
• Divorce-related financial issues due to legal fees and income splitting
• Businesses that are in the red or nearing it

To make an informed decision regarding bankruptcy, you need a general understanding of what each type of bankruptcy does and for whom it is intended.

Who Chapter 7 Bankruptcy Is For

Chapter 7 is the type of bankruptcy that involves liquidation and a release of personal liability for dischargeable debts. Chapter 7 bankruptcy actually has a built-in method for informing individuals whether it is right for them. That method is called the “means test,” and everyone who wishes to file Chapter 7 bankruptcy has to take this test first to see if they qualify. The means test is designed to prevent people with too high an income from using this method of protection.

• View the Official Chapter 7 Means Test Form

The means test will calculate various aspects of your income and necessary expenses to determine if you qualify for Chapter 7. Overall, the Chapter 7 bankruptcy is intended for those who[1]:

1. Can pass the means test;
2. Are individual debtors who need a discharge of debt;
3. Have not, in the preceding 180 days, had a bankruptcy petition dismissed due to willful failure to appear before the court or comply with its orders;
4. Have, in the preceding 180 days, received credit counseling from an approved credit counseling agency;
5. Are not filing solely to get rid of a lien on a property, because Chapter 7 cannot extinguish this;
6. Need relief from creditors attempting to take collections;

According to the U.S. Courts, individual debtors who pass the means test requirements usually receive a discharge within 60-90 days. More than 99% of these cases are granted.

Who Chapter 11 Bankruptcy Is For

Chapter 11 is reorganization bankruptcy, and it is typically used by commercial enterprises[2].

Chapter 11 is generally intended for:

1. Typically businesses who wish to continue operations while they reorganize their debts in order to be able to pay back creditors;
2. Those who have not, in the preceding 180 days, had a bankruptcy petition dismissed due to willful failure to appear before the court or comply with its orders;
3. Those who have, in the preceding 180 days, received credit counseling from an approved credit counseling agency;
4. Those who are able to file a list of assets and liabilities, a schedule of current income and expenditures, a schedule of executory contracts and unexpired leases, and a statement of financial affairs.
5. Those who need relief from creditors attempting to take collections;
6. Those who can file a debt repayment plan between 120 days and 18 months.