Personal Bankruptcy Options in the U.S. Bankruptcy Code
Understand Your Bankruptcy Protections
Chapter 7 vs. Chapter 13 Bankruptcy
The U.S. Bankruptcy Code was designed with consumers like you in mind, as evident in the different personal bankruptcy protections that are provided depending on your financial circumstances, needs and goals.
Under the U.S. Bankruptcy Code, you are afforded two personal bankruptcy protections to help you address your debts: Chapter 7 bankruptcy and Chapter 13 bankruptcy.
You've probably heard about these different personal bankruptcy protections in the past but may not know what they specifically do when filing bankruptcy.
The following page provides you with a nice introduction to these personal bankruptcy protections and what they may mean to you when seeking a fresh financial start. Of course, you can always explore these consumer bankruptcy options in more detail with a local bankruptcy lawyer.
At Total Bankruptcy, we can connect you with a sponsoring bankruptcy lawyer in your area - all you have to do is fill out our free bankruptcy case evaluation form or call 877- 349-1309 and we'll do the rest.
Click Here For Free 2 Minute Evaluation
Chapter 7 vs. Chapter 13 Bankruptcy - How These Personal Bankruptcy Options Differ
Before you can even come close to answering this question (which should be done with the guidance of a local bankruptcy lawyer), you need to know what these personal bankruptcy protections do, how they differ, when they apply and what they may mean to you.
Chapter 7 bankruptcy is commonly known as liquidation. During Chapter 7 cases, you may have your unsecured debts (credit card debts, medical bills, payday loans, some other debts that are not tied to a specific item like a mortgage loan is tied to a home) forgiven.
This is known as the Chapter 7 discharge during this type of personal bankruptcy. Before you can receive this discharge, a bankruptcy trustee assigned to your case has the option of selling your non-exempt assets for cash that can be used to pay back your creditors. This is referred to as liquidation, but the good news is that most Chapter 7 petitioners do not have any non-exempt assets, meaning that they are able to keep most, if not all, of their property.
Whereas Chapter 7 bankruptcy may allow you to get your unsecured debts completely discharged (excused), Chapter 13 personal bankruptcy deals with secured debt, that is debt like your mortgage or auto loan specifically linked to collateral like your home or car.
Rather than discharging these secured debts, Chapter 13 bankruptcy reorganizes these debts in the form of a 3-5 year repayment plan. In other words, during Chapter 13 personal bankruptcy, you agree to repay your secured debts over time in exchange for getting to keep your home or car, which you may be in danger of losing to foreclosure or repossession.
Which Personal Bankruptcy Plan is Right for You?
An answer to this question depends on your financial situation, needs and goals. While there are some general characteristics that may make one personal bankruptcy protection better for your situation than the other, you should speak with a local bankruptcy lawyer who can examine your needs in more detail and compare them with Chapter 7 and Chapter 13 bankruptcy.
Many people choose Chapter 7 bankruptcy when they:
- are overwhelmed by unsecured debts like credit cards and medical bills that you can't catch up on despite your best efforts;
- own little property besides the basic necessities like clothing and furniture; and
- cannot meet basic expenses (in other words, they have little to no money left after paying necessary expenses each month).
You should know that before you can file for this form of personal bankruptcy, you must pass the Chapter 7 means test determining your eligibility. While the Chapter 7 means test may sound intimidating at first, it is not like most tests you have taken. Rather, it includes a comparison of your income with the median income in your state for a family the same size as yours. Most people are still able to file Chapter 7 bankruptcy even with the implementation of the means test, which took effect with the new bankruptcy law in 2005.
As for Chapter 13 bankruptcy, people may choose this personal bankruptcy when they:
- own property with significant equity that you want to keep;
- are facing home foreclosure or vehicle repossession; and
- have a regular income and the ability to keep up with current monthly payments, but cannot catch up on late/overdue payments for secured items.
Bankruptcy Lawyers Can Take You Through Your Personal Bankruptcy Options
While the different types of personal bankruptcy offer their own advantages (Chapter 7 bankruptcy cases move very quickly and may provide you with a discharge; Chapter 13 bankruptcy may allow you to keep your home and car, and give you some breathing room to catch up on the debts tied to these items), you're likely wondering which one makes more sense for your current needs.
As detailed above, a local bankruptcy lawyer can help you examine this question in greater detail than what we've provided on this page. Simply fill out our free bankruptcy case evaluation form or call 877-349-1309, and we'll quickly connect you with one of our nearby sponsoring bankruptcy lawyers who can evaluate your situation along the lines of Chapter 7 and 13 bankruptcy and help you come to an educated decision on what may be best for you.
The above summary is by no means all-inclusive and is not legal advice. For the latest information on bankruptcy laws, speak to a bankruptcy attorney in your area.
