Understanding the Bankruptcy Option Right For You

Bankruptcy is a smart option for those facing bills that realistically will never be paid. Understanding the need for consumers to get a fresh start after financial hardship, legislators created options to help you recover financial health. Two of those options are filing for protection under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code.

Named for their section in the Bankruptcy Code, Chapter 7 and Chapter 13 offer different types of financial relief for people in varying circumstances. Consider the following when thinking about the bankruptcy option that might fit your financial picture:

• Chapter 7. As a liquidation bankruptcy, Chapter 7 allows discharge of unsecured debt in exchange for sale of nonexempt property to pay your creditors. Oftentimes, there is little or no nonexempt property to sell and creditors are not repaid even as the debt is eliminated. Chapter 7 is concluded in three to five months and is a good option for consumers with high debt and few assets. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) made qualifying for Chapter 7 bankruptcy significantly more difficult, requiring many consumers to consider filing for Chapter 13 bankruptcy.
• Chapter 13. With certain limitations on the amount of debt allowed, Chapter 13 bankruptcy is for individuals with some income who can continue to pay on reorganized debt. Called a wage earner plan, Chapter 13 allows consumers to keep their property and create a payment plan to repay all or some of their debt over a three- to five-year period. Chapter 13 can be used to remove secondary, unsecured liens on a home while still keeping the property.

If you are in over your head, federal law provides protection under the Bankruptcy Code. Take advantage of these options if you need them. When you have questions, our law firm can help.