Types of Bankruptcy

• A consumer with too much debt has the choice of filing either Chapter 13 or Chapter 7 bankruptcy, named after their respective sections in the Federal Bankruptcy Code.
  
  Chapter 13 bankruptcy creates a plan, approved and monitored by the court, which allows a debtor to pay back his debts at rate proportionate to his income level over the course of either three or five years. At the end of the plan, the debtor gains a clean slate free of the debts included on the plan, such as mortgage arrearage payments, credit card debts, and medical bills. In a Chapter 13 bankruptcy, the debtor will normally keep most or all of her assets such as a car or home, but will continue to make the payments on those items over the course of those loans. Nearly any consumer debtor who has too many bills, but maintains a regular source of income, can qualify for Chapter 13 bankruptcy.
  
  Chapter 7 bankruptcy allows a complete discharge of all unsecured debts (debts such as medical bills, credit cards, or personal loans that do not have collateral to secure them), releasing the debtor from paying back any portion of those bills. If a debtor wants to keep an asset, such as a home or car, he can do so if its value falls under the exemption limits set by his state of residence, and if he reaffirms, or agrees to pay back, the corresponding debt on the item, such as a mortgage. There are income qualifications and other limitations on potential Chapter 7 bankruptcy filers.
  
  

Exempt Assets

• When considering Chapter 7 bankruptcy protection, a debtor should consider whether there are items she wants to keep, and whether those items would be considered exempt under her state's statutes. If not, the debtor risks losing property by filing for bankruptcy, in some cases defeating the purposes of seeking bankruptcy protection in the first place. Most states allow debtors to keep a certain amount of retirement funds, wages, home value, transportation, and personal items safe from creditors in bankruptcy. To find out what your state's qualified exempt property is, visit http://www.thebankruptcysite.org/bankruptcy-exemptions/. A debtor who owns non-exempt assets may wish to consider Chapter 13 bankruptcy to protect those assets, and may not be a good candidate for Chapter 7 bankruptcy.
  
  

Income Limitations

• In 2005, the federal bankruptcy laws changed to add a means test to qualify debtors for Chapter 7 bankruptcy. In this means test, a debtor's income is compared to his state's median income and subjected to a formula that determines whether he can repay 25 percent of his unsecured debts. Those who do not qualify for debt relief under the means test for Chapter 7 bankruptcy may consider Chapter 13 bankruptcy or other options. Because this means test is somewhat complex, an attorney skilled in bankruptcy law will need to consult with a potential bankruptcy client, analyze her financial situation, and then advise her on the best course of action.
  
  

Considerations

• According to the uscourts.gov Website regarding bankruptcy, to qualify for Chapter 7 debt relief, the debtor may be an "individual, a partnership, or a corporation or other business entity." Someone cannot file bankruptcy if he has a prior bankruptcy petition that was dismissed in the past 180 days for a variety of reasons. Additionally, a debtor seeking Chapter 7 bankruptcy relief must receive credit counseling from an approved agency within 180 days of the filing.
  
  To be eligible for a Chapter 13 debt repayment plan, a debtor must have regular income. To come up with a payment plan in Chapter 13 bankruptcy that the court is likely to approve, a debtor needs to consult an attorney skilled in this area.
  
  

Costs

• Filing for bankruptcy costs between hundreds and thousands of dollars including filing fees, attorney fees, and other costs. The required filing fee for Chapter 13 bankruptcy is $235 and there is an administrative fee of $39, both of which must be paid at the time of filing unless the debtor qualifies for a fee waiver. The courts charge a filing fee of $245 and an administrative fee of $39 for Chapter 7 bankruptcy, which must be paid at the time of filing unless the debtor qualifies for a waiver or installment plan.
  
  Attorney fees vary widely. Many attorneys charge by the hour for their services, but others charge a flat fee for bankruptcy filings, especially Chapter 7 filings. Although a debtor can file for bankruptcy unrepresented by an attorney, bankruptcy is a legal proceeding and an attorney protects his clients legal rights in the proceeding.