If you are considering filing for personal bankruptcy, there are two options available. They are Chapter 7 and Chapter 13. Yet, depending on your situation, you may only have one choice.
A Chapter 7 bankruptcy requires you to pass a means test. If your income is higher than the threshold, Chapter 13 will be the only option available to you. If, however you come in under the means test threshold, you can choose between the two.
What is better, Chapter 7 or Chapter 13?
Each bankruptcy type comes with advantages and disadvantages. What is best for you may not be best for someone else.
The main advantage of Chapter 7 is that it erases debt, giving you a clean start. The disadvantage is that you may need to wave goodbye to specific assets to do so. As part of the filing, the bankruptcy trustee will sell your property to raise money to pay back some of your debts. In certain circumstances, you may be able to keep some assets, but you will need to keep paying as per the original schedule for those items.
The principal advantage of Chapter 13 is that you get to keep most or all of your assets. The major drawback is that you still need to pay for them. This option does not erase your debts. It restructures them, giving you another chance to pay them back. One report suggests two-thirds of people fail to make their Chapter 13 repayment plans, forcing them to file for Chapter 7 later.
Getting help to review your situation and understand more about what each type of personal bankruptcy entails can help you make the correct choice.