Guide to Bankruptcy Types

When you've gotten into debt, it can be tough to dig yourself out of it. While it's recommended that you try other means of removing yourself from debt, there might come a time when you have no other options except to declare bankruptcy. This is something that can only be established through a state or federal court.

What is Chapter 7 Bankruptcy?

With over 900,000 bankruptcy cases flooding the courts each year, about 70 percent of them are Chapter 7 filings. A Chapter 7 dismisses all of your debt, but at a cost. A court-appointed representative sells your assets to cover paying the representative or trustee and covering administrative fees.

In some cases, you might be allowed to keep your house and car, but that depends on the state. Some states will let you keep your home while others will not. It also depends on your case. To start the process, you have to file a Chapter 7 Bankruptcy Petition with the court in your jurisdiction. There's a filing fee that has to be paid too.

Chapter 13 Bankruptcy

While a Chapter 7 will wipe out your debt, a Chapter 13 will reorganize your debt so you can stop a foreclosure or IRS collection from taking your assets. The court will consolidate debts into an affordable repayment structure.

People with debts under a certain amount are the best candidates for a Chapter 13 restructuring. Each jurisdiction has an amount that is evaluated periodically. With a Chapter 13, you must create a repayment plan that is approved by creditors.

You can hire a lawyer to help you with both a Chapter 7 and 13. Most courts recommend it.