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You basically have two options when filing: you can either file for Chapter 7 or Chapter 13, depending on your situation. The main difference between the two is that Chapter 7 involves liquidation of property as opposed to Chapter 13, which works more like a repayment plan.

Chapter 7 Bankruptcy, also know as a “straight bankruptcy” or “liquidation bankruptcy” Chapter 7 is the most common in US. About one million Chapter 7 bankruptcies were filed for the year of 2006. A filing under this chapter could be done either by an individual, a partnership, or a corporation or other business entity. Individuals with higher income will most likely not qualify for this type of filing. Chapter 7 does not offer a repayment plan, instead the debtor surrenders all non-exempt property to a bankruptcy trustee, who sells it and puts the proceeds towards repaying the debt. It is possible to discharge certain debts when filing under Chapter 7. You won’t be able to discharge taxes, spousal and child support, student loans. This one stays on your credit report for up to ten years, even if your case is not approved. Filing fees are different for different states, but you should expect to pay a sum above $1000. Cost could be higher for businesses. Debtors must attend obligatory credit counseling within 180 days prior to filing bankruptcy petition.

Chapter 13 Bankruptcy, or a “wage earner’s plan” offers a 3-5 years debt repayment plan to the debtor, and it also allows a defaulter to keep their property. About half a million Chapter 13 filings were done in 2006. This bankruptcy is meant for individuals with a steady income, who can afford to make monthly payments towards their debt. A 3-year plan is proposed if the debtor’s income is below the state median, and a 5-year plan is proposed if the earnings are above the state median. A Chapter 13 filing stays on your credit report for up to 7 years. Debtors must attend obligatory credit counseling within 6 months prior to filing bankruptcy petition. Chapter 13 doesn’t let you discharge family support, restitution, student loans, old taxes and DWI judgments. Filings under Chapter 13 are usually more complicated than Chapter 7 therefore this plan is associated with higher filing costs. You must not miss a single payment, skipping a disbursement will dismiss your case.

Filing for bankruptcy is a tough step to take, but unfortunately sometimes individuals have no other choice but to go that way. Even though, before filing you should re-check all your options again. Remember, bankruptcy will stay on your credit report for up to 10 years, and this move should be your last resort.

Tags: bankruptcy | chapter 7 | chapter 13 | debt | credit