Types of Bankruptcy

Deciding on the proper type of bankruptcy for you depends on your current financial situation and assets. Some people will qualify for both Chapter 7 and Chapter 13 and will be able to choose whichever type of filing they prefer. Others, however, will only qualify for one type of filing and will need to decide if bankruptcy is their best financial option.
Chapter 7, frequently referred to as "liquidation" or "straight bankruptcy," is the fasted and most common form of bankruptcy in the United States. In a Chapter 7 bankruptcy, a debtor's non-exempt assets, if any, are sold (liquidated) by the interim trustee and distributed among creditors. The value of property that can be claimed as exempt varies according to state bankruptcy law. Eligibility to file Chapter 7 is determined by the means test instituted with the 2005 amendments to the bankruptcy code.
Chapter 13 involves the reorganization of a person's debts in order to repay his or her creditors. Unlike Chapter 7, which provides for more immediate and complete relief of a person's debt, a Chapter 13 bankruptcy filing requires the individual to pay back his debts over a 3- to 5-year period. Under the terms of Chapter 13, your unsecured debts (credit cards, loans, etc.) are combined into one category and a payment plan is developed based on income and acceptable expenses.
There are both advantages and disadvantages to filing either Chapter 7 bankruptcy or Chapter 13 bankruptcy. Before deciding on either option, it is best to enlist the help of a legal adviser to review your alternatives and obligations. By properly evaluating the pros and cons of both types of bankruptcy and basing your decision on your current situation, you will be better prepared to decide which bankruptcy route to go with.