Facing medical debt can be overwhelming, leaving many Californians searching for effective ways to manage or eliminate these burdens. Bankruptcy might be a viable option, but choosing between Chapter 7 and Chapter 13 bankruptcy involves understanding their distinct differences and implications for your financial future.
Here at Law Offices of Terrence Fantauzzi, we can help guide you through these choices to determine the best path for your specific situation. Contact us at (909) 552-1238 for a free legal consultation.
Chapter 7 Bankruptcy: Liquidation for Quick Relief
Chapter 7 bankruptcy, commonly referred to as liquidation bankruptcy, is the most frequently filed form of personal bankruptcy both nationally and in California. It’s designed to provide a fresh start by discharging most unsecured debts, including medical bills, which are completely eliminated without the need to pay back the balances.
How Chapter 7 Works
To qualify for Chapter 7, applicants must pass a means test to demonstrate that their income is below the median level for their household size in California or that they don’t have enough disposable income to pay off their debts. The process includes:
- Mandatory credit counseling.
- Filing a bankruptcy petition along with detailed documentation of income, debts, and assets.
- A court-appointed trustee who may liquidate non-exempt assets to repay creditors.
Most people who file for Chapter 7 can keep their primary residence and other essential assets through bankruptcy exemptions. Typically, the entire process takes about four to six months, making it a relatively quick way to resolve overwhelming medical debts.
Chapter 13 Bankruptcy: A Structured Repayment Plan
Chapter 13 bankruptcy is less common but provides a viable solution for individuals who have a regular income and wish to keep all their assets. Known as reorganization bankruptcy, Chapter 13 involves restructuring debts and creating a manageable repayment plan.
How Chapter 13 Works
Chapter 13 allows you to consolidate your debts and make monthly payments based on your disposable income over three to five years. Here’s what the process generally involves:
- Filing a petition along with a proposed repayment plan.
- Court approval of the repayment plan, which considers your income and the nature of your debts.
- Making regular payments to a trustee who distributes the funds to creditors.
After completing the payment plan, most remaining unsecured debts, including medical bills, are discharged. Chapter 13 is particularly beneficial for those with higher incomes or more substantial assets they wish to protect from liquidation.
Which Bankruptcy Option is Best for Medical Debt?
The choice between Chapter 7 and Chapter 13 bankruptcy depends on several factors:
- Your Income: Chapter 7 is typically better for lower-income individuals, while Chapter 13 suits those with regular incomes who can handle a repayment plan.
- Your Assets: If you own substantial assets you wish to retain, Chapter 13 may be more appropriate.
- The Amount and Type of Debt: Chapter 7 offers a quick discharge of unsecured debts like medical bills, whereas Chapter 13 involves paying back a portion of the debts over time.
Legal Guidance is Key
Deciding on the right bankruptcy chapter requires careful consideration of your current financial situation and long-term goals. Law Offices of Terrence Fantauzzi offers personalized consultations to help navigate these complex decisions and to explore whether bankruptcy is the right solution for your medical debts or if other alternatives may be more suitable.
Ready to Explore Your Options?
If medical debt has become unmanageable, bankruptcy might provide the relief you need. Contact Law Offices of Terrence Fantauzzi at (909) 552-1238 to schedule your free consultation. Our experienced team is here to provide the guidance and support necessary to secure your financial freedom and start anew.