Bankruptcy eliminates financial stress when other options fail, and it could do the same for you. To find out, try learning about the differences between Chapter 7 and Chapter 13. It’s an excellent place to start.
Chapter 7 is the quicker, cheaper type that most people prefer. You’ll find, however, that Chapter 13 offers benefits not available in Chapter 7, such as the ability to prevent foreclosure so you can keep your house. Chapter 13 is also a good option for people who don’t qualify for Chapter 7.
If you’re leaning toward Chapter 7, knowing exactly how much you’ll gain will help you make an objective financial decision. Start by determining whether you can discharge (wipe out) your debts. Then learn whether you can protect all of your assets with bankruptcy exemptions. Once you know, tally up the amount bankruptcy will discharge, and subtract the value of the property you’d lose, if any. Filers planning to hire an attorney should take the additional step of subtracting legal fees and court costs.
If you stand to lose property, don’t automatically assume it’s a loss. The trustee will use the proceeds from a property sale to pay down priority debts that you remain responsible for first, such as back taxes or support arrearages. So if the trustee sells your boat for $3,000 and applies it toward a $5,000 tax bill—a priority debt that won’t go away in bankruptcy—you’ll owe only $2,000 after your case ends.
Once you’re satisfied with the math, reading up on things to avoid before filing for bankruptcy and bankruptcy timing issues will help you avoid running into unexpected problems. Finally, and most importantly, check out your conclusions by consulting with a local bankruptcy lawyer. A knowledgeable attorney can identify and handle issues you might have missed.
If you’re considering Chapter 13, start by learning how the Chapter 13 repayment plan works. You’ll quickly recognize that it’s a complicated chapter, but don’t let that dissuade you. A knowledgeable bankruptcy lawyer can cut through the confusion in no time, and most offer free consultations.