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Chapter 7 vs. Chapter 13: Which one is right for you?

When an Essex County household is struggling with over-burdening debt, options become fewer and fewer to escape that debt. However, even with few options it can still be difficult to know which method of escaping debt is financially smartest for your future. Much of this comes down to choosing between the two most common forms of personal bankruptcy: Chapter 7 and Chapter 13.

For those households that have been long struggling with debt and are faced with significantly fewer assets than the debt they owe, Chapter 7 is the option many choose. Chapter 7 bankruptcy allows a filer to discharge most unsecured debt, while keeping creditors at bay during the process, and can use what property an individual owns to cover other debts. A means test is used to determine whether an individual has a low enough income to make them eligible for this type of bankruptcy filing.

Chapter 13 bankruptcy, then, is more favorable for individuals who may have significant property they want to retain post-bankruptcy. These households are in less debilitating debt trouble, and have a steady income. Filers of Chapter 13 bankruptcy are able to create a repayment plan to allow them to more easily pay back debts, traditionally over a three- to five-year period.

When deciding to file for bankruptcy, it's good to keep in mind that it does cost some money and will affect your credit score negatively. However, these negatives are often far outweighed by the positives of escaping significant debt and working toward a stronger financial future. Debt is an unsettling problem, but not one that can't be turned around.

Source:, "Consider bankruptcy options if necessary," Elliot Raphaelson, July 22, 2012

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