Chapter 7 Bankruptcy or Chapter 13 Bankruptcy?

Generally speaking - if you have a ton of unsecured debt such as credit card debt, and have few if any assets you wish to keep after bankruptcy, the chapter 7 bankruptcy would be ideal for you. You wipe away your debts and get a fresh start at life.

If your debts aren't all that large and you have a substantial income, you might not be able to qualify for a chapter 7 bankruptcy under the new bankruptcy law. As always consult with an experienced attorney for your personal answer.

But if you have a home, car or other assets you wish to retain, you might want to consider a chapter 13 bankruptcy.

A chapter 13 is really little more than a court ordered payment extension on all your outstanding debts..

The bankruptcy court wipes away the previously agreed upon payment period and replaces it with either a three or five year extended repayment plan. You have to pay all your debts but you get much more time. The old payment time limits are washed away.

Some view chapter 13 as financial slavery but others see it very differently. They buy the things they want and then use chapter 13 to extend the payment period so they get to keep everything in a way they can afford.

Major retailers hate bankruptcy of course. They end up with much less than they originally bargained for. Every day big stores get court notifications that certain accounts have been cancelled by the bankruptcy court. You can imagine how they feel about that. But the chapter 13 really irritates them as consumers can buy a home and fill it with all the goodies and then keep it all despite having too little income.

Bottom line: if you have enough income to pay off a substantial portion of your debts within a year or so, you might want to consider either paying off your debts yourself or pursuing a chapter 13 bankruptcy instead of the more popular chapter 7 route. But if you're clearly in way over your head and unable to make even the minimum payments - chapter 7 may be your only real option.

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