Chapter 7 is just one kind of bankruptcy you might be considering if you are in a large amount of debt. It’s not for everyone, though, and there could be other alternatives you need to consider first.
With Chapter 7 bankruptcies, you liquidate many of your assets to pay down the debt you owe. After you complete the bankruptcy, the court dismisses additional debts. For example, if you owe $100,000 and exhaust all your assets at $75,000, the court may dismiss $25,000 of the debt to allow you to start with a clean slate.
Comparatively, Chapter 11 bankruptcies allow you to keep your assets and require a payment plan or adjustment to how you’ll pay the debts. This bankruptcy typically only takes place with businesses, but individuals can sometimes file as well.
Chapter 13 bankruptcy is another option in which you choose to catch up your payments over a three-to-five year period. You must qualify for this bankruptcy by meeting the state median requirements. If you make more than the state median, you’ll need to take a means test to see if bankruptcy is right for you.
If bankruptcy isn’t the right choice for you, then there are alternatives to consider. For example, you may negotiate directly with your credit card lenders and ask for a lower interest rate or extended payment plan. Sometimes, you can have some payments deferred until you can catch up, like in the case that you lose your job and need more time to pay. Your attorney can help you review a number of different options that may work in your case.
Source: FindLaw, “Chapter 7 and Options to Bankruptcy,” accessed Jan. 23, 2017