Bankruptcy Basics: Chapter 7 vs. Chapter 13 Bankruptcy

Do you find yourself falling behind on bills, unable to catch up?

There are millions of Americans in your situation—especially during these tumultuous economic times.

Some people are finding that filing bankruptcy could help them get out of debt and back on financial track.

In fact, more than one million people filed bankruptcy in 2008 alone. Those non-business bankruptcies increased 43 percent from 2007—and it’s projected that even more people will file bankruptcy in 2009.

If you’re considering bankruptcy as a possible debt-relief option, it’s a good idea to know your options because the two main types of personal bankruptcy have different purposes.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy was designed to discharge a debtor’s unsecured debts.

Once a person receives a Chapter 7 discharge, they are no longer responsible to pay on those debts, which can include:

• credit card debt

• medical bills

• utility bills

• payday loans

• some personal loans

• parking tickets

Chapter 7 is typically reserved for people who have little or no income and are struggling to make it month to month.

In fact, in order to file Chapter 7, a person must qualify under the Chapter 7 means test.