Have you fallen into serious debt and are considering filing for bankruptcy in Alabama? If so, you’re not alone – bankruptcy can offer a fresh start to those who are struggling financially. However, it’s important to understand the different types of bankruptcy available to you. In Alabama, Chapter 7 and Chapter 13 are the most common types of bankruptcy. Here’s what you need to know about the differences between the two.
Chapter 7 bankruptcy is often referred to as “liquidation” bankruptcy. It’s designed for individuals or couples who have low incomes and not much in the way of assets. With Chapter 7 bankruptcy, your assets are sold to repay your debts, and any remaining debt is discharged. However, not all debts are dischargeable – for example, child support and student loans cannot be eliminated through Chapter 7 bankruptcy.
On the other hand, Chapter 13 bankruptcy is often referred to as “reorganization” bankruptcy. This type of bankruptcy is designed for individuals or couples who have a regular income and want to keep their assets – their home and car, for example. With Chapter 13 bankruptcy, you’re given the opportunity to restructure your debts and pay them off in a three to five-year period. At the end of that period, any remaining debt is discharged.
So, what’s the difference between Chapter 7 and Chapter 13 bankruptcy in Alabama? In short, the type of bankruptcy you choose to file depends on your circumstances. If you have few assets and a low income, Chapter 7 bankruptcy may be the best option for you, as it allows you to wipe out most of your debts while retaining certain exempt assets like clothing and household goods. If, however, you have a steady income and want to retain your possessions, including your home or car, Chapter 13 bankruptcy may be the way to go.
It’s important to note that both types of bankruptcy have certain eligibility requirements. For example, to qualify for Chapter 7 bankruptcy in Alabama, your income must be below the state median income, or you must pass a means test to ensure that you do not have enough disposable income to pay off your debts. To qualify for Chapter 13, you must have enough regular income to keep up with the repayment plan. So, be sure to consult with an experienced bankruptcy attorney in Alabama to determine if you meet the eligibility requirements for either type of bankruptcy.
Another important factor to consider is the impact that bankruptcy will have on your credit score. Filing for bankruptcy will have a negative impact on your credit score for several years, making it more difficult to obtain credit or loans in the future. However, it’s important to note that credit scores can recover over time, and bankruptcy may be the quickest way to get your finances back on track. It’s also worth noting that creditors may see Chapter 13 bankruptcy as a positive sign that you’re taking responsibility for your debt and working to repay it.
In summary, the difference between Chapter 7 and Chapter 13 bankruptcy in Alabama ultimately comes down to your income, assets, and financial goals. Chapter 7 bankruptcy is a good option for people with low incomes and few assets, while Chapter 13 bankruptcy may be more appropriate for those with a regular income and more substantial assets like a home or a car. As with any legal process, it’s important to seek the guidance of an experienced Prattville bankruptcy attorney to help you navigate the complexities of the bankruptcy system and make the right choice for your financial future.