Tips For Choosing The Right Form Of Bankruptcy For You: Chapters 7 Or 13

If you are in dire financial straits, afflicted with constant bill collection actions and in danger of losing property through foreclosure, bankruptcy could be right for you. There are several different types of bankruptcy, with two of the most well-known being used by individuals (as opposed to businesses) being chapter 7 and chapter 13. While both chapters 7 and 13 have many similarities, the way that debt and property is treated are quite different. Read on to learn the main points of each of these forms of bankruptcy to help you decide what's right for your financial situation.

Chapter 7 bankruptcy is sometimes referred to as a liquidation filing due to the bankruptcy court's ability to seize your property to help pay your creditors. Don't panic, however, you can use exemptions to keep some property, such as real estate and vehicles. A chapter 7 is best for people who:

1. Have low-to-average incomes. Every state has a median income level, and you may be prevented from filing for Chapter 7 if your income is higher. The means calculation is only a rough estimate, so contact a bankruptcy attorney for more information, particularly if you are very near the median limit.

2. Have few assets. As stated above, you can use exemptions to reduce the value of your major assets, like real estate, but in some cases you must surrender homes, vehicles, art, bank accounts and more. For example, if your state allows you a $50,000.00 "homestead" exemption, and your home is valued at $175,000 but you have a mortgage owing $150,000 you would likely be able to keep your home since the equity in your home ($25,000.00) is less than the exemption amount.

3. Want to have your bankruptcy completed in only few months time. Depending on the federal case backlog in your district, you may have a finalization in as little as 5 months.

Chapter 13 is referred to as a re-organization, since you have the ability to pay some of your debt back with an organized repayment plan. A chapter 13 is best for people who:

1. Exceed the income allowed on the means test for chapter 7.

2. Have more assets that may be used to enable you to pay creditors. For example, you would be able to keep a rental property that is generating income, which could help with your financial recovery efforts.

3. Want to pay some of your creditors and are in no hurry to complete the bankruptcy process.

When making your decision on what form of bankruptcy to use, it's important to note that both chapter 7 and chapter 13 stay on your credit for 10 years, but some creditors consider chapter 13 filers to be a better credit risk due to their good faith efforts to pay off at least some of their creditors. No matter what type of filing your choose, consult with a bankruptcy attorney, like Smith & Weer PC, for more state-specific information for your situation.