Bankruptcy is a pitfall that no one ever wants to fall into, however sometimes life can get in the way and mean that you are unable to get away from it. There are two different types of bankruptcy: chapter 7 and chapter 13.

In both of these bankruptcies, the debtor is relieved of the obligation to pay off any outstanding debts, as this is called discharge of debt.

The Basics of Chapter 13 Bankruptcy

Of course, this exemption doesn’t come with no consequences for the debtor, there are always ways which the debtor must ‘pay back’ the favor given to them by the authority in charge, for example in chapter 7 bankruptcy the debtor is required to turn over any property which is not exempt. In other words any cars, second homes or other assets which can be used to pay off the debt.

In Chapter 13 bankruptcy, rather than the debtor having to turn over their property to the authority so they can sell it on, the debtor must make small payment for 36-60 months to a trustee who will give these funds to the creditors as a way of paying back the debts.

So why would you choose to file chapter 13 bankruptcy instead of chapter 7? Surely it take much longer to be free of debt. But there are reasons why chapter 13 might be more suited to you.

The Means Test

The means test is a calculation which every consumer is assigned when filing for sharper product bankruptcy and this is used to decide whether the debtor has enough funds in order to file for chapter 13 and keep up with the regular payments.

If this case is met the consumer is said to have filed for chapter 7 under “presumption of abuse”. This basically means that the bankruptcy lawyers would rather have the consumer making small payments to pay back at least some of their debt rather than giving them a discharge of the debt.

Advantages of Chapter 13 Bankruptcy Over Chapter 7 Bankruptcy

Most people who fail this test are filed for chapter 13 bankruptcy rather than fight against the test results. Here are some of the advantages of chapter 13 bankruptcy over chapter 7:

• it can provide the debtor with protection if they make too much money for a chapter 7 case
• it allows the debtor to pay back large loans such as mortgages, cars and others in order to avoid filing for discharge second mortgage
• it allows the debtor to pay back overdue taxes from the past to make sure they are totally debt free by the end of the plan
• it can allow the debtor to set longer terms for car loans
• it can help with student debt payments
• it provides protection on property which the debtor would have to give up in a chapter 7 case
• it allows the debtor to pay the bankruptcy fee as part of the plan

You will be able to get advice on which the best bankruptcy plan is for you by asking a lawyer or contacting a credit counselor for help with your finances.