If you’re considering bankruptcy, you may have already discovered that the two main types people use are known as Chapter 7 and Chapter 13. These are very different; you may be eligible for one and not the other. For instance, you can earn too much to use Chapter 7, but you may still be able to use Chapter 13 at your income level.
What you need to know is how the two programs differ. What is the best option for you? It depends on your situation.
First off, Chapter 7 is what people often think of when thinking about bankruptcy for the first time. There are exempt assets that you get to keep, but you must sell — or liquidate — your non-exempt assets. This creates capital that can be used to pay off your creditors as much as possible. When those funds get used up, you get to erase the remaining debt without paying it off.
With Chapter 13, you have to make payments into a scheduled repayment plan. This is why it’s often used for those with a higher income level. Your debt is simply reorganized. The repayment plan is generally for three to five years. This is useful when you’re making money but you simply can’t afford all of the debt at once. Spreading it out gives you the ability to pay it off while still making ends meet.
These are the rough basics of both types of bankruptcy, but there are many intricate details you’ll also want to consider. As you move forward, it may help to work with a legal team that is experienced, dedicated and driven to find your best solutions.