Types of Bankruptcy

Although bankruptcy allows a debtor a way out of a vicious cycle of debt, it should not be taken lightly, and should be a means of last resort. Check the personal bankruptcy online services available and you will find most will first offer means to avoid bankruptcy before going down the road of Chapter 7 bankruptcy or Chapter 13 bankruptcy. This is understandable as bankruptcy will have a major impact on your life for a number of years after the act.

After using personal bankruptcy online services, if you still feel bankruptcy is the only option then determine if Chapter 7 bankruptcy or Chapter 13 bankruptcy are right for you.

Chapter 7 Bankruptcy:

Chapter 7 bankruptcy is known as ‘straight bankruptcy' and is the preferred option for people with little or no property and a lot of unsecured debt. It is a liquidation bankruptcy meaning that the court will sell any non-exempt assets you have to pay your creditors and irrespective of the amount paid, discharge that debt.

Since October 2005 there is a ‘means test' applied to applicants for Chapter 7 Bankruptcy. You must be earning less than the average income of your state (check www.usdoj.gov/ust). If you are above your state's median then you can still file for chapter 7 if your excess income cannot pay your debts over 5 years AND cannot pay 25% of your unsecured debt over that period.

Chapter 7 bankruptcy does not discharge all debts. Previous judgements on alimony and child support remain, as does any state or federal tax bills. If you keep your home or car, all payments on these must be kept up.

Chapter 13 Bankruptcy:

Chapter 13 Bankruptcy, sometimes called the wage earner's plan, or reorganization bankruptcy, is quite different from Chapter 7 bankruptcy (which wipes out most of your debts). In a Chapter 13 bankruptcy, you use your income to pay some or all of what you owe to your creditors over time -anywhere from three to five years, depending on the size of your debts and income.

You must have a regular income and owe less than $250,000.00 in unsecured debt and $750,000.00 in secured debt. These debts must also be non-contingent and liquidated, meaning that they must be for a certain, fixed amount and not subject to any conditions.

When preparing to enter bankruptcy, ensure you check as many personal bankruptcy online services as possible, where you will get advice on the type of bankruptcy best suited to you. Be aware that Chapter 7 bankruptcy will remain on your credit history for 10 years after the event and Chapter 13 bankruptcy will stay on your history for 7 years after you file.