How do I decide if bankruptcy is necessary?

Before deciding to file for bankruptcy, you must understand what bankruptcy will and will not do for you. Bankruptcy won’t solve every problem or get rid of every debt. If it is clear that you need bankruptcy relief, the next step is to determine what type of bankruptcy to file.

TYPES OF DEBTS
Whether bankruptcy is the right choice, and if so, what type of bankruptcy to file, depends in large part on the type of debts you have. There are three main types of debts: secured, unsecured, and priority. Unsecured debts include things like medical bills and credit cards. Secured debts include car loans, mortgage loans, and some store accounts. Priority debts include most income tax obligations.

CHAPTER 7 BANKRUPTCY
A Chapter 7 bankruptcy will discharge most unsecured debts. Secured debts, such as a car loan, or home mortgage, normally must be paid in order to protect the collateral. Priority debts, such as most income tax obligations, usually cannot be discharged in a Chapter 7 bankruptcy.

So, if most of your debt is general unsecured debt like credit cards and medical bills, and the payments on your secured debts are up to date, Chapter 7 bankruptcy may be a good choice. If you owe significant tax debt or the payments on your secured debts like your car loan or home mortgage are significantly past due, Chapter 13 may be the best option.

CHAPTER 13 BANKRUPTCY
Under Chapter 13, a repayment plan is set up for a period of 36 to 60 months. To file Chapter 13 you must have regular income sufficient to pay your living expenses and still fund the plan. Your attorney will review your income and expenses, and work to formulate a plan you can afford. A typical Chapter 13 plan pays secured debts and priority debts over the term of the plan. Unsecured debts are often paid little or nothing, but you are protected while the plan is going on, and balance that remains when the plan is completed is normally discharged (wiped out).

GOOD ADVICE IS MOST IMPORTANT!

It is critical that you get good legal advice before making any decision about bankruptcy. Make sure you talk to an attorney with experience in both Chapter 7 and Chapter 13 cases. Most good bankruptcy attorneys will provide you with a free initial consultation. He or she will fully evaluate your finances and explain all of your options.

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