If you are overwhelmed with insurmountable debt and are being hounded by creditors and collection agencies, bankruptcy may provide the opportunity you’ve been searching for to take control of your debt and protect your financial future. You may have found, however, that you are unsure what the different Chapters entail and you are confused as to which is right for your family. The first step is to understand the basics of the two main types of consumer bankruptcy.

Chapter 7

This Chapter provides for the discharge of most types of debt through the liquidation of assets to repay creditors. If you qualify to file by passing the means test, the court will assign a bankruptcy trustee to your case who will gather all nonexempt assets that can be used for liquidation. After liquidating the items, the trustee will distribute the funds between your creditors, and you will be discharged from many of your remaining debts.

Chapter 13

This type of bankruptcy uses reorganization of debt to create a court-approved repayment plan that allows you to repay your creditors. You will not risk any assets to liquidation, and a bankruptcy trustee will work with you to create a plan that will use one affordable monthly payment to repay your creditors over a three to five year period.

Determining Your Goals and Options

There are a number of factors that you must consider when deciding which Chapter is right for your situation. Think through the following items to help better understand what you hope to achieve, and then speak with a knowledgeable attorney who can address your unique concerns and inform you of the specifics of your legal options.

  • Can I pass the means test? If you are not eligible to file for Chapter 7, Chapter 13 offers the opportunity to repay your debts over a period of years, rather than at the creditor’s whim.
  • How soon do I hope to be done with the bankruptcy process? While Chapter 13 enables you to pay off your debt with affordable payments, the process takes three to five years. If you would like to be done sooner and you qualify, you may be able to complete the Chapter 7 process in less than one year.
  • Can my debts be discharged? Certain types of debt, such as school loans, child support, alimony, and most unpaid taxes cannot be discharged through bankruptcy. If the majority of your debt falls under these categories, Chapter 7 may not help your situation as much as Chapter 13 could.
  • Am I comfortable filing for bankruptcy? Regardless of the circumstances, if you still want to avoid bankruptcy, it is probably best to wait on filing. Our firm can help you explore alternatives to bankruptcy that could be beneficial for your financial issues.