After deciding to file for bankruptcy, the next step involves choosing a type. There are two main options available for individuals: Chapter 7 and Chapter 13. While both offer advantages, there are differences in the bankruptcy law associated with each. Here's a closer look at the specifics.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is powered by the liquidation of assets. With this method, unsecured debts are discharged, including credit cards and personal loans.

As a result, you're no longer liable for these accounts. However, property may be sold to help cover part or all of what's owed to the creditors. 

Bankruptcy law allows most filers to exempt certain properties from the liquidation process. Often, a single vehicle under a specified value can be kept, along with a home if the equity is less than the designated amount. Other non-essential items, like a vacation house or antique collectibles, aren't protected from the process. 

Additionally, Chapter 7 applicants must pass a means test. In order to qualify for Chapter 7, you either need to make less than the state median — $48,486 in Alabama — or otherwise demonstrate that you have little to no disposable income. 

Chapter 13 Bankruptcy

Chapter 13 bankruptcy takes a slightly different approach to debt elimination. The biggest difference is the lack of liquidation. Instead of selling off assets, the debts are essentially reorganized in a more digestible manner. 

The court works with applicants and their attorneys to review their financial situation and come up with a feasible repayment plan. The payments are spread over a three- to five-year period. While the unsecured debts aren't erased upfront, the court often reduces the total percentage owed.

Do you think bankruptcy is the right option for you? Reach out to Donna C. Crooks, Attorney at Law, in Daleville, AL, to learn more about your options. The attorney serves residents across Southeast Alabama. Along with bankruptcy law, her practice areas include family law and estate planning, including wills. Review her offerings online, or call (334) 598-9534 to request a consultation.