There are several kinds of bankruptcy options available. If you are worried about personal debt rather than business debt, you need to consider either a Chapter 7 or Chapter 13 filing. The differences are significant, so it is essential to make the correct choice.
Chapter 7 will wipe out all qualifying debts you wish to include. It can cover car loans, personal loans, medical bills and credit card debt. While that may sound marvelous, it comes at a cost. In exchange for being freed from your worries, you may have to sacrifice the assets you own.
For example, by including a vehicle loan, you will no longer have to pay for your car. However, you will no longer have a car to pay for as the loan company will claim it. State law allows you to keep some things as long as they meet the exemption requirements. For example, if you own your vehicle outright and it has a low value, they may exempt it from being sold to pay debtors. If the equity in your house is below the threshold, you may get to retain it.
Chapter 13 allows you to keep more, but it does not erase debts
Chapter 13 bankruptcy does not clear your debts. It gives you a second chance to pay them. However, many people who file for Chapter 13 fail to meet the restructured payments and then file for Chapter 7. Does that mean you should go straight to Chapter 7? You might not have the choice. To qualify for Chapter 7, you must pass a means test. If your disposable income is over the threshold, Chapter 13 may be your only choice.
Bankruptcy can simplify your life but understanding how it works and whether it is right for you is not simple. Getting help to assess your situation will be crucial to making the right choice.