What are the various types of bankruptcy?
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UPDATED: Jul 16, 2021
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With most Americans living paycheck to paycheck, it is no wonder that so many end up behind on their bills and under a mountain of debt before they know it. If this sounds all too familiar to you, you may be contemplating bankruptcy in order to give yourself a fresh start. However, bankruptcy can be very complicated, and there are several different types of bankruptcy to choose from.
For instance, if you’re completely overwhelmed by your bills and don’t have a lot of assets, you may want to consider a Chapter 7 filing. In Chapter 7, your possessions may be repossessed or sold for a profit that will go to your creditors. But, home equity, retirement accounts, and personal property can be retained depending on the exemptions to which you are entitled. Although most debts can be discharged or eliminated by filing Chapter 7, some, such as student loans or certain taxes, will likely not be discharged.
Not everyone will qualify for a Chapter 7. To qualify, you must make less than the median income in your state or pass a test called a means test showing that you don’t have any disposable income to pay creditors after paying your bills.
Another option—Chapter 13—is often called a wage earners bankruptcy. Chapter 13 is available to you if you make too much money to qualify for Chapter 7, or if you don’t want to give up the possessions that would not have qualified for exemption in a Chapter 7. Chapter 13 involves creating repayment plans wherein creditors are paid back some of what they are owed. Repayment plans usually last between three and five years and any debts that are included in a Chapter 13 repayment plan will be discharged at the end of this payment period.
Both Chapter 7 and Chapter 13 bankruptcies provide important protections for you as a consumer and can help you get back on your feet. You should consult a bankruptcy attorney to help you choose the best type of filing for your situation.