If you have fallen behind on your mortgage or find yourself unable to keep up with credit card payments, bankruptcy may provide an avenue toward reclaiming your life from debt. Because no two financial situations are the same, the code offers two options for struggling borrowers, each of which is designed for different circumstances. Understanding how these programs differ will help ensure you make the right choice if you decide to file for debt relief.

Chapter 7

Chapter 7 bankruptcy, also known as a liquidation, allows borrowers to completely eliminate most unsecured debt, including credit cards, medical expenses, and even some unpaid taxes. In exchange, the trustee of the court may be allowed to seize some of your assets to pay back creditors, although each state allows petitioners to exempt a wide range of property.

To qualify for Chapter 7 protection, borrowers must pass a means test, which shows that your liabilities outweigh your assets. While filing a Chapter 7 petition may temporarily stop a foreclosure, it will not discharge past due amounts on your mortgage or other secured debts.

Chapter 13

Chapter 13 bankruptcy is designed for borrowers who do have the resources to make up the arrears on secured debts through a court-managed payment plan. These payment plans may include mortgage arrears, past due amounts on an auto loan, unpaid taxes, and other priority debts. Unsecured debt may also be eliminated, but those creditors must receive at least as much as they would if you had filed for Chapter 7.

Because Chapter 13 petitioners are paying back their debts, the trustee will not seize assets or apply a means test to your finances. Instead, you must be able to show that you have the resources available to make monthly bankruptcy payments while staying current on your other obligations.

If you have run into financial difficulties, the bankruptcy attorneys at LaRowe Gerlach Taggart LLP in Reedsburg, WI, will help you achieve the debt relief you need. Their legal team has over 150 years of combined experience helping borrowers throughout Southern Wisconsin get the second chance they deserve. Visit their website for more on their services, get updates on Facebook, or call (608) 524-8231 to schedule an initial consultation with an experienced attorney.