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Getting a new financial start with Chapter 13 bankruptcy

Does it feel as though the weight of your debts is crushing you? If so, you probably wonder if bankruptcy is the right decision. While it's not the right decision for everyone, many people have found financial freedom from filing for bankruptcy.

For individuals, there are two types of bankruptcy: Chapter 7 and Chapter 13. Chapter 7 is often referred to as "litigation bankruptcy," and Chapter 13 is often called "reorganization bankruptcy." Both will discharge your unsecured debts, but there is a stark difference between the two.

Chapter 7 bankruptcy uses a means test to see if you qualify to for this type of bankruptcy. Chapter 13 does not have a means test. If you do not qualify for Chapter 7 because your income is too high, then Chapter 13 may be right for you.

This type of bankruptcy uses a three- to five-year payment plan. Once these payments are completed, your remaining debt is discharged. Chapter 13 is a good choice if you own a home, but have fallen behind on the payments. Even if your home is in foreclosure, you still may be able to keep it.

Chapter 7 and 13 bankruptcies are the right choice for individual situations. With the help of an experienced bankruptcy attorney, you can know fairly quickly which type of bankruptcy is right for you. Be sure to discuss the other advantages and disadvantages of each type of bankruptcy with your attorney. This will ensure that you have a new financial start -- and a lot less stress -- when the bankruptcy is finished.

Source: The Balance, "What is Chapter 13 Bankruptcy," accessed Dec. 08, 2017

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