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Chapter 7 vs. Chapter 13 Bankruptcy

Understanding Which Type of Bankruptcy is Right For You

There are two main types of bankruptcy that are filed by individuals or families in North Dakota. 

  • Chapter 7, which is commonly referred to as “liquidation bankruptcy” and discharges all of your debt, and
  • Chapter 13, which is referred to as “reorganization bankruptcy” and consolidates all of your debt into one payment plan which is administered through the bankruptcy court.

For most families struggling with debt, Chapter 7 is ideal as it actually eliminates debt instead of simply reorganizing it.  However, to qualify for Chapter 7, you must pass what is called “The Means Test”. 

Qualifying for Chapter 7 Bankruptcy in North Dakota – The Means Test

There are two ways that an individual or a family can qualify for Chapter 7 bankruptcy in North Dakota.  They can either have a household income that is less than the median income (see median incomes here) or they can pass what is called the means test.  The means test essentially takes your income and then subtracts the accepted expenses to determine if you qualify.  If you have questions about qualifying for Chapter 7 or how to calculate accepted expenses in North Dakota call me for a free initial bankruptcy consultation.

How Chapter 7 Bankruptcy Works

In theory, Chapter 7 bankruptcy eliminates all of your debt by “liquidating” or selling off all of your property.  However, with the protections offered through exemptions, or items that are “exempt” from being sold, most families that qualify financially are able to file chapter 7 bankruptcy without ever actually selling or losing any of their possessions. 

Chapter 7 Bankruptcy is Ideal for:

  • Families or individuals who are below the North Dakota Median Income.
  • People who are not concerned with saving any assets (although the exemptions will allow protection of your primary home, auto, a wedding ring, etc)
  • People who have suffered a medical condition causing both high medical bills and an inability to make an income
  • People who were recently divorced and were assigned a share of their marital debt which is unmanageable

How Chapter 13 Bankruptcy Works

In Chapter 13 bankruptcy, the debtor proposes a plan where they make one payment to the bankruptcy court towards their debts.  Typically, chapter 13 plans will take between 3 and 5 years; this does not mean that all debts are completely paid off; at the end of the plan some debts can be discharged.  The repayment agreement is managed by the bankruptcy trustee who will work with the creditors to determine how your combined monthly payment is allocated. 

Chapter 13 Bankruptcy is Ideal For:

  • People who have a stable income, but are unable to make their current financial obligations
  • Debtors who are having trouble keeping up with their monthly payments but have assets to protect
  • People who need help managing their debt but do not qualify for Chapter 7 bankruptcy

Determining Which Type of Bankruptcy is Best For You

I can help you understand which type of bankruptcy would best fit your situation during a free initial consultation.  If you can prepare a basic list of the things that you own and what you owe, I can typically give you a road map of how your bankruptcy will look.  To take the first step and get your initial questions about bankruptcy answered, call or email me today.