The bankruptcy code offers two options for borrowers struggling with unmanageable debt, each designed for different situations. Chapter 7 and Chapter 13 bankruptcies can help relieve the burden and provide a path back to financial solvency. Here is an overview of these two programs and how to decide which is right for you.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy completely eliminates most unsecured debts, including credit cards, medical bills, and even some unpaid taxes. This option is usually best for borrowers who don’t expect their financial difficulty to end on its own.

In exchange for eliminating your debts, the trustee of the court gains the right to seize some of your assets to pay back your creditors. Fortunately, the bankruptcy code allows borrowers to exempt a wide range of belongings, including clothing, tools, value in a vehicle, and some home equity. Many borrowers are able to take advantage of Chapter 7 protection without losing anything at all.

However, filing for bankruptcy triggers an automatic stay, which puts an immediate stop to all collections activity. This includes phone calls and letters, as well as lawsuits and wage garnishment. For many borrowers, the immediate relief provided by the automatic stay can be just as valuable as the long-term financial benefit.

Chapter 13 Bankruptcy

While Chapter 13 bankruptcy also eliminates unsecured debt, it also provides solutions for borrowers who have fallen behind on their mortgage or auto loans. Through this program, you can make up arrears through a court-managed payment plan, which usually takes three to five years. Once you’ve paid off the debt, your account will be considered current.

Because you’re actually paying back the secured debt, you won’t have to surrender any of your assets in a Chapter 13 bankruptcy. However, the payment plan you submit should consume all of your disposable income, which can be difficult for some borrowers.

To qualify for Chapter 13 protection, you must prove to the court that you have the resources to keep up with your payments without falling behind on your other debts. This includes submitting detailed financial information and a budget showing how much you can devote to your bankruptcy payments. This makes Chapter 13 ideal for borrowers whose financial problems were caused by a temporary situation, such as a job loss or medical emergency.

If you’re struggling to keep your head above water, let the Behm Law Group LTD. help guide you back to solid ground. Their attorney is a board-certified bankruptcy specialist with over 26 years of experience providing personalized solutions to borrowers throughout the Mankato, MN, area. Visit their website to learn more about the benefits of Chapter 7 and Chapter 13 bankruptcies, get more legal insight on Facebook, or call (507) 387-7200 to schedule a consultation.