What type of bankruptcy should I file?

Most people have one of two options for debt relief through bankruptcy- a Chapter 7 or Chapter 13 petition. In a Chapter 7 bankruptcy, almost all your debts are discharged. In exchange for this discharge, the bankruptcy trustee can take any property you own that is not exempt from collection, sell it, and distribute the proceeds to your creditors. What property is exempt from collection depends primarily on state law. Typically, exemptions include some equity in your home and car, retirement funds, public benefits, and most household goods, furniture, furnishings, clothing, appliances, books, and musical instruments. A Chapter 7 bankruptcy petition is much faster and can be completed within four months. To be eligible to file a Chapter 7 bankruptcy, you must pass an income means test- your income (averaged over the last 6 months) must be less than the state median income. But an income above the state median will not automatically disqualify you. If you are close to the state median income, you may be able to deduct certain expenses to reduce your income to the state median.

A Chapter 13 bankruptcy petition requires a repayment plan that lasts for a minimum of 3 years. It allows you to keep your home and possibly strip back second mortgages if your home is underwater.

Types of Bankruptcy Cases

What happens after I file bankruptcy?

After the bankruptcy petition is filed, the court will appoint a trustee and call a meeting of all your creditors. The trustee and your creditors can ask you about your assets, income, and expenses.

In a Chapter 7, the trustee will determine what assets, if any, the court can take possession of and sell. But almost all your assets will be exempted (protected). Once the trustee determines that there are no assets available for liquidation, almost all your outstanding debts are discharged.

In a Chapter 13, you must include a repayment plan that provides for monthly payments to creditors in your petition. Your creditors may question your income and expenses to try to obtain a larger monthly payment amount. Once the repayment plan is confirmed, you must make the payments for the required time period or your bankruptcy may be dismissed.