How to Choose the Right Bankruptcy Option in Pennsylvania
Filing for bankruptcy can be a daunting decision, especially in Pennsylvania, where various options are available based on individual circumstances. Understanding how to choose the right bankruptcy option is crucial to achieve financial relief and regain control of your financial future. Below, we explore the key bankruptcy options in Pennsylvania and offer guidance on selecting the best one for your situation.
1. Understanding Bankruptcy Types
In Pennsylvania, the two most common types of bankruptcy for individuals are Chapter 7 and Chapter 13. Each serves different needs and has distinct eligibility requirements.
Chapter 7 Bankruptcy
Chapter 7, also known as "liquidation bankruptcy," allows filers to discharge most unsecured debts, including credit card debts, medical bills, and personal loans. This option is ideal for individuals with limited income and few assets. However, it is important to note that not all debts qualify for discharge, and higher-income earners may be subject to the means test, which evaluates your income against the state’s median income.
Chapter 13 Bankruptcy
Chapter 13 is often referred to as a "reorganization bankruptcy." This option enables individuals with a regular income to create a repayment plan to pay back part or all of their debts over three to five years. Chapter 13 is suitable for those who want to keep their assets, such as a home or a car, while managing their debt. It also offers protection against foreclosure and repossession, making it a valuable option for many.
2. Evaluate Your Financial Situation
Before deciding on a bankruptcy option, take a critical look at your financial circumstances. Consider the following:
- Income: Assess your current monthly income and expenses. Are you able to meet your obligations, or is it increasingly difficult?
- Assets: Identify what assets you own, including property, vehicles, and savings. Chapter 7 may require liquidation of non-exempt assets, whereas Chapter 13 allows you to keep them.
- Debt Types: Differentiate between secured debts (like mortgages and car loans) and unsecured debts (like credit cards). This will impact which bankruptcy route is more beneficial.
3. Consider Eligibility Requirements
It’s crucial to understand the eligibility requirements for each bankruptcy option. For Chapter 7, you must pass a means test that evaluates your income against Pennsylvania's median income guidelines. If your income is too high, you may have to consider Chapter 13 instead.
For Chapter 13, you need a steady income to adhere to the repayment plan. Ensure that your debts fit within the allowable limits: secured debts must be under $1,257,850, and unsecured debts must be below $419,275.
4. Seek Professional Guidance
Choosing the right bankruptcy option can be complex, and seeking advice from a qualified bankruptcy attorney in Pennsylvania is highly recommended. An experienced attorney can help clarify the legal process, explain the pros and cons of each bankruptcy type, and ensure that you complete all necessary paperwork accurately.
5. Long-term Implications
Lastly, consider the long-term implications of each bankruptcy option. Chapter 7 stays on your credit report for ten years, while Chapter 13 stays for seven years. Understanding how bankruptcy will affect your credit and financial future is crucial in making an informed decision.
By carefully evaluating your unique situation and seeking appropriate legal advice, you can choose the bankruptcy option in Pennsylvania that provides you with the best chance for a fresh financial start.