Are you struggling for getting out of a bog of debts? If yes, qualifying for Bankruptcy is helpful to reduce debt and stand bank on your feet financially. Before filing for bankruptcy, you must be familiar with its consequences of credits that are severe and will take time to recover.
However, Chapter 7 and Chapter 13 are the two common types of Bankruptcy. And both have a particular number of requirements to qualify. This handbook will provide you with every possible information if you want to qualify for Bankruptcy.
An introduction to Bankruptcy
Bankruptcy is a type of legal process that will help you get relief from your debts and stand back on your feet financially. However, there are two common types of Bankruptcy, Chapter 7 and Chapter 13.
Below we will discuss both Bankruptcies and what you will require to qualify for.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is also known as a straight Bankruptcy that will allow you to clean out various unsecured debts like credit card bills. However, it is a legal process of several months only.
Who can qualify for it?
Moreover, you have to know that not everyone can qualify for Chapter 7 Bankruptcy. There are several requirements that you have to look for to pursue Chapter 7 Bankruptcy.
- In the previous six months, your average monthly income must be lower than the median salary. If your last six months salary is not lacking, there is a means test that you have to pass. This test will tell you that your disposable income is enough to make partial payments. If you got failed, do not worry, you can qualify for Chapter 13 Bankruptcy.
- If you file for Chapter 7 Bankruptcy, but your case got thrown out, you can refile within 181 days.
- Before filing for bankruptcy, you must finish an individual or group credit counseling within 180 days.
- If you attempt to defraud creditors, the judge will throw out your case for filing Chapter 7 Bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is a legal process that will allow you to repay your debts over a three to five year period.
Who can qualify for it?
However, requirements for Chapter 13 Bankruptcy are different from Chapter 7 Bankruptcy.
Let us discuss these requirements.
- To make the monthly debt payments, you require enough income.
- Your secured debts, such as car and mortgage payments must be less than $1,257,850. On the other hand, your unsecured debts like credit cards and medical bills must be less than $419,275. Keep in mind that this dollar amount will change in every three years.
- You have to submit proof that you filed federal and state income tax returns for the last four years.
- You must pass out an individual or group credit counseling course within 180 days.
How will Bankruptcy affect your credit?
If you qualify for Bankruptcy, it will cause some severe consequences of credits that will take a long time to recover. However, it does not leave any permanent mark on your credit report, so you have to rebuild your credit.
If you are filing for any Bankruptcy, it will show up on your credit card. However, if you file for Chapter 7 Bankruptcy, it will stay on your credit for ten years and affect your credit score.
On the other hand, Chapter 13 Bankruptcy will stay on your credit card for seven years. So we can say that Chapter 13 Bankruptcy will cause less credit risk than Chapter 7 Bankruptcy.
Remember that your FICO score must be better enough before filing for Bankruptcy. If your FICO score is less, there will be a steeper drop in your score.
Why should you qualify for Bankruptcy?
Indeed, your financial situation will not stay the same every time. If you qualify for Bankruptcy, it will give you the ability to stand back financially and repay your debts.
However, every person has similar reasons for filing Bankruptcy. So here we will discuss some reasons for filing Bankruptcy.
- If you lose your job, you will get into a severe financial crisis that will take time to recover.
- Having divorced can affect the financial situation of both you and your partner. However, it will become uneasy about paying all your debts.
- If you caught up in a bad health situation like a catastrophic illness or injury, it would become uneasy about paying off the medical debts and your personal debts.
It is vital to be careful before filing for bankruptcy because it is a tough decision for straightening your financial situation. However, if you qualify for Bankruptcy, it will give you a fresh start to your financial path. So carefully read this article and make your decision.