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While many people view filing for bankruptcy as a negative action, it can allow a person to get a fresh financial start.

Depending on the facts of your case, you could be eligible for either Chapter 7 or Chapter 13 bankruptcy.

Filing for Chapter 7 bankruptcy results in a discharge, or the elimination, of your debt.

Filing for Chapter 13 bankruptcy results in a repayment plan that allows you to catch up on past due payments.

If you’re considering filing for bankruptcy in Indiana, you should contact an Indianapolis bankruptcy lawyer today. A bankruptcy attorney can help you navigate the stressful and complex bankruptcy process.

Filing for Bankruptcy in Indiana

Chapter 7 and Chapter 13 bankruptcy each have their own attributes, advantages, and disadvantages.

Chapter 7

Chapter 7 bankruptcy, also known as liquidation bankruptcy, discharges a debtor from general, unsecured debts. It is most often used by debtors with low income, few assets, and extremely high unsecured debt. Unsecured debt consists of loans that are not backed by collateral, such as credit card debt, payday loans, and medical bills.

Many debtors choose to file for Chapter 7 bankruptcy because it allows individuals to quickly discharge their debt. However, Chapter 7 debtors cannot avoid foreclosure on their home or repossession of personal property, such as their car, because it does not provide a way to make up missed loan payments.

Debtors must also take a credit counseling class from an approved credit counseling agency within the six months before filing for bankruptcy.

Chapter 13

Chapter 13 bankruptcy, also called reorganization bankruptcy, allows debtors to form a repayment plan to repay their debts to their creditors over a three-to-five-year period. Debtors who want to keep secured assets, such as their home or car, tend to prefer Chapter 13 bankruptcy. Unlike Chapter 7, Chapter 13 bankruptcy stops foreclosure proceedings and allows the debtor to pay past-due mortgage payments over time. Chapter 13 debtors can also restructure other secured debts, such as a car payment, and pay it out over the life of the repayment plan.

Non-dischargeable Debts

In both Chapter 7 and Chapter 13 cases, certain types of debts are not dischargeable. Debtors are responsible for paying non-dischargeable debts because they cannot be excluded from the bankruptcy estate.

In Chapter 7 cases, debtors are still liable for non-dischargeable debts after receiving a discharge. In Chapter 13 cases, non-dischargeable debts must be paid during the life of the repayment plan. If they are not, they will remain debts at the end of the case.

In Indiana, non-dischargeable debts include:

  • Alimony,
  • Child support,
  • Student loans,
  • Fraudulent debts,
  • Fines and penalties resulting from criminal cases, and
  • Debts resulting from personal injury cases caused by driving under the influence. 

To find out whether any of your debts might be non-dischargeable, speak with an Indianapolis bankruptcy lawyer today.

Who Should File for Bankruptcy?

Chapter 7 and Chapter 13 bankruptcy have key differences that affect which type of bankruptcy debtors should file for.

Chapter 7

Individuals, partnerships, corporations, and other business entities can file for Chapter 7 bankruptcy. However, potential debtors must also pass the means test, which bars high-income individuals from filing for Chapter 7 bankruptcy.

Monthly income

The first step in the means test is completing the statement of monthly income form. This form allows individuals to determine whether their income is above or below the median income for their household size. The Indiana median income levels are as follows:

Household SizeMedian Annual IncomeMedian Monthly Income
1$48,834.00$4,069.50
2$62,931.00$5,244.25
3$73,537.00$6,128.08
4$87,636.00$7,303.00
5$96,636.00$8,053.00
6$105,636.00$8,803.00

If your current monthly income is lower than the median income for your family size, you immediately qualify to file for Chapter 7 bankruptcy. However, if your monthly income exceeds the median income, you must determine your level of disposable income.

Disposable income

To determine your level of disposable income, you must complete the means test calculation form.

If your monthly disposable income is below $8,175, you are eligible to file for Chapter 7 bankruptcy. However, if your monthly disposable income is more than $13,650, you cannot file for Chapter 7 bankruptcy, absent special circumstances.

If your monthly disposable income is $8,175 or greater but less than $13,650, you must compare your monthly disposable income with 25% of your total nonpriority unsecured debt.

If your monthly disposable income is less than 25% of your total nonpriority unsecured debt, then you qualify for Chapter 7 bankruptcy. However, if your monthly disposable income is greater than or equal to 25% of your total nonpriority unsecured debt, then you cannot file for Chapter 7 bankruptcy, absent special circumstances.

The purpose of determining disposable income is to prevent individuals from taking advantage of Chapter 7 bankruptcy when they could use other means to pay off their debt, such as Chapter 13 bankruptcy.

Chapter 13

To qualify for Chapter 13 bankruptcy, individuals must have a regular source of income and some disposable income. Chapter 13 debtors often include:

  • Debtors who do not qualify for Chapter 7,
  • Debtors with non-dischargeable debts that they want to pay off, and
  • Debtors who have fallen behind on loan payments and want to get caught up.

Additionally, Chapter 13 debtors must have less than $394,725 in unsecured debt and less than $1,184,200 in secured debt.

To learn more about which form of bankruptcy you should file for, speak with an Indianapolis bankruptcy attorney today.

What Happens When I File for Bankruptcy?

Filing for bankruptcy creates the bankruptcy estate, which becomes the legal owner of your property. A trustee is appointed to manage your estate, and your debts are subject to an automatic stay.

Appointment of a Trustee

The U.S. bankruptcy trustee appoints a trustee who administers your bankruptcy case.

In Chapter 7 cases, the bankruptcy trustee collects all of your assets and sells those that are not exempt from the bankruptcy estate. The trustee then distributes the proceeds to your creditors.

In Chapter 13 cases, the trustee collects your payments under your repayment plan and distributes funds to your creditors.

Automatic Stay

When you file for bankruptcy, the automatic stay immediately takes effect. The automatic stay prevents creditors from demanding payment for your debt and filing collection actions.

However, the automatic stay does not stop all types of proceedings, such as criminal and some family law actions against the debtor. In Chapter 13 cases, the automatic stay also applies to co-debtors who are liable along with the primary debtor.

Why Should I Hire an Indianapolis Bankruptcy Lawyer?

If you are considering filing for Chapter 7 or Chapter 13 bankruptcy in Indiana, you should speak with an Indianapolis bankruptcy attorney as soon as possible.

A bankruptcy lawyer in Indiana can help you determine which type of bankruptcy fits your situation, file your paperwork properly, and help you obtain either a discharge or a repayment plan as quickly as possible.

Our bankruptcy lawyers at Eskew Law will provide you with a customized and personalized experience. We will help create the best bankruptcy strategy for you after understanding how you think and what your interests are. Contact us today to schedule your consultation.