STEP 1:  There are Many Types of Bankruptcy Filings,

Know Which One is Best for You

          There are many types of Bankruptcy and its easy to get confused about them -- Chapter 7, Chapter 11, Chapter 13...  ugh!  How do I know what's best for my situation?  Almost all consumers, that is, people who are concerned about debt and bills in their own name, will fall into two groups.  Consumers that file for Chapter 7 Bankruptcy or those that file for Chapter 13 Bankruptcy. 


          CHAPTER 7:  Its very important to qualify for Chapter 7 if you can.  Why?  Because it results in a "discharge" of your debts.  This determination is based on a standardized "Means Based Test."  For instance, if you qualify under the Means Based Test and you have $50,000 of credit card debt, if your bankruptcy petition is "discharged," YOU OWE NOTHING TO THE CREDIT CARD COMPANY!  There are exceptions to what can and cannot be discharged, but that's something a lawyer can help you with.  For instance, only individuals can use Chapter 7; corporations and partnerships cannot.  PLUS, the second (literally) that you file for bankruptcy protection, it automatically acts to stop all collection efforts and the harassing calls, even foreclosure! 

          CHAPTER 13:  In a Chapter 13 Bankruptcy, your debts are not discharged 100%, but the court essentially mandates that your creditors enter into a payment plan with you at reduced rates.  For instance, say you do not qualify under the Means Based Test because you make a higher income or have a partnership, and yet you still have $50,000 of credit card debt.  What will happen is that the court, through an administrator called a "trustee," will determine "what's fair" based on your wages.  So if they decide that its fair to make you pay off $25,000 over 5 years, then you enter into a payment plan with your creditors.  You must make payments under this plan but after 3-5 years of payments, the remaining debt owed to the credit card company is erased.  So, its like a partial discharge.  And, during this time, you will be free from the harassing creditors calls and collection efforts! 


(Move to STEP 2 to learn if you qualify.)