Many myths exist regarding bankruptcy, and one misconception may center on the debtor’s overall income and obligations. Beliefs that only wealthy New Jersey residents seek bankruptcy protection are inaccurate. Low-income earners could find themselves dealing with significant debt as medical bills or unemployment-driven borrowing could force people of limited means into federal court. Individuals earning lower incomes may benefit from learning about bankruptcy laws that are there for them.
Points about bankruptcy for low-income earners
Regardless of the debtor’s past or present net worth, anyone intending to file bankruptcy will need to address the bankruptcy filing fee. “Address” doesn’t necessarily mean that the filer must pay the fee: A waiver could be an option for someone below 150% of the federal poverty level.
Not everyone realizes that a waiver is a possible option, so someone might not seek bankruptcy protections over concerns about such fees. Reviewing basic information about bankruptcy laws could lead a debtor to realize that the process may be more inclusive than they believed.
Chapter 13 vs. Chapter 7 bankruptcy
Worries about making monthly bankruptcy plan payments could stress out a would-be filer. The individual might not realize that there are different types of personal bankruptcy, and Chapter 13 bankruptcy involves making payments to cover any debt not discharged. However, someone with few assets and limited earnings may qualify for Chapter 7.
Chapter 7 bankruptcy involves liquidating any non-exempt and available assets to pay creditors. Some debts may face a discharge, meaning the borrower doesn’t have to repay them. There is no payment plan with Chapter 7.
Chapter 13 involves making a workable and reasonable payment plan based on the person’s income and assets, so a lower-income filer not qualified for Chapter 7 may find a Chapter 13 payment plan affordable. Those who are unable to make their payments might end up reclassified under Chapter 7.