Filing bankruptcy is a legal right to deal with debts that you simply cannot afford to repay.  Anyone can face unexpected financial hardship, such as medical bills that were not covered by insurance.  The important point to understand is that needing to file bankruptcy does not make you a failure in life.

Chapter 7

There are several different types of bankruptcy cases, and the most common one is Chapter 7.  If you file Chapter 7, you get the protection of the automatic stay, which is an automatic Court Order that stops, or stays, the collection efforts of your creditors.  However, Chapter 7 is also a proceeding for the liquidation of your assets, if you have any assets.  The filing of a Chapter 7 case creates a bankruptcy estate, with a Chapter 7 Trustee assigned to administer the assets of the bankruptcy estate.  Your assets become the assets of the bankruptcy estate, and the Chapter 7 Trustee will want to liquidate your assets in order to pay your creditors.  However, you can also claim your assets as exempt from the bankruptcy estate.  In fact, in most Chapter 7 consumer bankruptcy cases, the Chapter 7 debtor’s assets turn out to be exempt, and so the case closes as a “no asset” case.  At the end of a Chapter 7 case, the Chapter 7 debtor receives a Court Order that relieves the debtor of his or her personal liability for dischargeable debts.

Chapter 7 is ideal for the person with low or average income, and with no valuable assets.  The “typical” Chapter 7 case finishes in approximately 4 months, although the amount of time it takes to finish a Chapter 7 case depends on the Chapter 7 debtor’s particular circumstances.

Chapter 13

Chapter 7, however, is not ideal for everyone with financial problems.  If your income is too high for a Chapter 7 case because your income is far above the average for your household size, then you may need to file Chapter 13.  If you have assets that you wish to keep, but which you would lose in a Chapter 7 liquidation, then that is another reason why you may need to consider filing Chapter 13 instead of Chapter 7.

The filing of a Chapter 13 case also triggers an automatic stay that protects you from the collection efforts of your creditors.  Unlike Chapter 7, however, Chapter 13 requires that you propose a reorganization plan to repay something instead of nothing to your creditors over a time period of 36 to 60 months.  After completing the Chapter 13 Plan, then you receive a Court order that relieves you of your personal liability for your dischargeable debts.

Dischargeable or Non-Dischargeable Debts

At the end of either a Chapter 7 or Chapter 13 case, the point is to receive a Court Order that discharges your personal liability for your debts.  Most debts can be discharged, such as medical bills, personal loans, judgments, and credit card bills that were not incurred by committing fraud.  Some debts, however, cannot be discharged, such as recent income tax debts and most student loans.  So another reason why you may need to file Chapter 13 instead of Chapter 7 is that you need a reorganization plan to pay back debts that will not be discharged if you just file Chapter 7.

By now, it should be clear that you may just have to see an attorney to help you to figure out what to do.