Declaring personal bankruptcy ... which type is right for you?

When considering declaring personal bankruptcy, there are two basic types offered under the U.S. Bankruptcy Code: Chapter 7 and Chapter 13. Making the decision to file for bankruptcy may be one of the biggest financial decisions you will make in your life.

When should I File Bankruptcy? What are my options?

Chapter 7 Bankruptcy

Chapter 7 bankruptcy involves the discharge (elimination) of unsecured debts, such as credit card debt, medical bills, payday loans and utility bills.

Chapter 7 bankruptcy is typically best for people who have lots of unsecured debt, little property and do not own a home (or if they have very little equity in a house). If you don’t have a lot of equity in your home, in some states you can opt to keep your home and reaffirm the mortgage. So long as you maintain the mortgage payments, you are able to keep your home.

If you have a lot of equity in your home, your home is at higher risk of loss. This is because the bankruptcy trustee has the option to liquidate (sell) a Chapter 7 filer’s property in order to repay creditors.

For people facing foreclosure, Chapter 13 bankruptcy is usually a better option.

Chapter 13 bankruptcy

Chapter 13 bankruptcy is typically best for people who have a regular income but have fallen behind on their secured bills (like a mortgage or car payment) and want to keep their property.

Chapter 13 bankruptcy works by setting a debtor on a repayment plan where they make current payments and work to repay past-due debts.

Under Chapter 13, the debtor makes one lower monthly payment directly to the bankruptcy trustee, who then disperses it to creditors.

These Chapter 13 bankruptcy repayment plans typically last three to five years and filers usually keep their property as long as they make their payments on time.

Keep in mind, although Chapter 13 bankruptcy has helped save hundreds of thousands of homes from foreclosure each year, it’s not right for everyone. All cases and debtor circumstances are different.

Should I file bankruptcy?

Will bankruptcy stop foreclosure? The best option is to talk with a bankruptcy lawyer before you make a final decision. Sometimes you can avoid bankruptcy by using the services of a credit counseling agency. If the credit counseling agency tells you they can’t help you … you are too far into debt and even reduced payments cannot get your budget back on track, then consider bankruptcy as the best option to get your life back.

How to file for bankruptcy:

Get all your financial documents, bills, proof of assets, etc. together and make an appointment to talk with a qualified bankruptcy attorney in your area.

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