There are two types of personal bankruptcy. You will need to choose which one suits your circumstances. They are:
Chapter 13 - Reorganization
If you have a regular income and limited debt, you may keep property, such as a mortgaged house or car that you otherwise might lose. In Chapter 13, the court approves a repayment plan that allows you to pay off a default during a period of three to five years, rather than surrender any property.
Chapter 7 - Discharge of Debt
Involves liquidating all assets that are not exempt. Exempt property may include cars, work-related tools and basic household furnishings. Some property may be sold by a court-appointed official a trustee or turned over to creditors. You can receive a discharge of your debts under Chapter 7 only once every six years.
- Both Chapters 7 and 13 may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities.
- Both also provide exemptions that allow you to keep certain assets, although exemption amounts vary.
- Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations.
- Unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or lien on it.
Which one is right for you? We can't tell you and, frankly, we don't think you should make the decision on your own. You will need an expert to guide you through this process and this is probably the first big decision you should discuss with that expert.
What Kind of Expert?
There is no shortage of supposed bankruptcy "experts" -- paralegals, prepaid legal plans, self-proclaimed counselors and attorneys. The big difference is that only an attorney can give you legal advice and since this is a legal process, that's really the only kind of advice that's worth anything.
Another issue is honesty. Let's face it -- human nature being what it is, some practitioners of any given craft are going to be more scrupulous than others. Attorneys are tightly regulated, believe it or not, and are answerable to their state bar associations, which come down hard on misconduct. If you doubt that, get hold of a state bar journal and read the disciplinary notices.
Paralegals will tell you they know how to fill out the forms, and probably they do. Prepaid legal plans will tell you they know how to fill out the forms and give you legal advice. But only a licensed attorney who practices in your locale can guarantee you that he or she will stand up in court with you and represent your best interests before the bar of justice.
It might sound like hot air but when the going gets tough -- as it can if one of your creditors decides to fight, or if the judge is having a bad day -- it's a great feeling to know you have an experienced, aggressive, expert litigator on your side.
Please note: the author is a paralegal and has no selfish reason to send business to lawyers. The editor of this site is not a lawyer and could care less whether lawyers prosper. Our duty is to you, the reader. And our advice is: find the most experienced bankruptcy lawyer you can. You want someone whose practice is exclusively bankruptcy, someone who lives and breathes the subject and knows every nook and cranny of bankruptcy law.
Every city has bankruptcy lawyers. They're not hard to find. They advertise in the Yellow Pages and elsewhere. You don't want the cheapest one, the youngest one, the nicest one -- you want the best one. For more on finding a lawyer, see Finding the Right Lawyer.