Is Bankruptcy Right For Me?

Are you tired of struggling to pay your bills?

One of your options for getting out of debt is bankruptcy, but that is usually the last resort for most people. Many people in debt consider bankruptcy, but usually they don’t understand the consequences of this huge decision until it is too late. Bankruptcy may seem like the light at the end of the tunnel, but it can be very traumatic. Aside from the fact that there is still a stigma associated with bankruptcy and that it is commonly viewed by many as failure and weakness, there are many other things one must consider before resorting to bankruptcy. Here are some facts about bankruptcy:


There are two main types of bankruptcy that an individual consumer can file, Chapter 7 and Chapter 13. They are very different, so let’s review the differences.

Chapter 7

A Chapter 7 bankruptcy is what is called a “liquidation” bankruptcy. This is the type of bankruptcy where all your unsecured debt can get discharged completely and you get to start over with a “clean slate.” For some people, this can be a good option. However, as with all options, there are pluses and minuses you should be aware of.

For starters, getting a complete discharge through a Chapter 7 bankruptcy is conditioned on a big if—if you qualify. In 2005, Congress passed legislation that made it more difficult to file a Chapter 7 bankruptcy. In order to qualify for a Chapter 7 bankruptcy, one has to make very little money and pass what’s called a “means test.” If you qualify, it can be a great option.

There is a catch though. With a Chapter 7 bankruptcy, you don’t get to “have your cake and eat it too.” You don’t get to start fresh with all your debt discharged and simultaneously keep all your stuff. Because a Chapter 7 bankruptcy is a liquidation bankruptcy, you have to liquidate all your stuff first. If you have any non-exempt assets, like a paid-off vehicle or baseball card collection, you have to sell that off. The Court will then pay your creditors as much as possible from the proceeds of the sale. Whatever is left gets discharged. In that regard, it really is a complete liquidation of all your assets, and then your debt.

Chapter 13

A Chapter 13 bankruptcy is very different. In some ways it is similar to debt settlement, but in many ways it’s actually a worse option. In a Chapter 13 bankruptcy, the Court will pay your creditors back a portion of the debt that you owe. They will look at your finances with a fine-tooth comb and figure out what they think you can payback. They will then put you in a program that is usually between 3-5 years long, during which time you will make monthly payments to the bankruptcy trustee who will then distribute the money to your creditors.

With a Chapter 13 bankruptcy, the Court, along with the bankruptcy trustee, will decide what your monthly plan payment will be. You have almost no say in what number they come up with. In fact, over the 3-5 years that you will be in the Chapter 13 plan—you will have almost no say about anything having to do with your money. This is one main thing that makes it extremely difficult for people in a Chapter 13 bankruptcy. They literally have the Court and the bankruptcy trustee breathing down their neck for the entire length of the plan. By filing a Chapter 13 bankruptcy, you are literally forced to give up all control of your life and your finances for 3-5 years.

Also, with a Chapter 13 bankruptcy, you cannot miss a single plan payment or the Court will dismiss the Chapter 13. For this reason, most people that file a Chapter 13 bankruptcy never receive a discharge of their debt. Statistics show that almost 70% of people that file a Chapter 13 bankruptcy never obtain a discharge.

Please note that one cannot file a Chapter 13, or any other bankruptcy, without first paying the attorney anywhere between $1000-$3500 upfront just to file the petition. If the Chapter 13 bankruptcy gets dismissed and you don’t obtain a discharge, you end up still drowning in debt with a bankruptcy on your record, and you have lost all the money you paid the attorney, the Court, and your creditors. That is the sad reality for 70% of Americans.

While there are some pluses about filing a Chapter 13 bankruptcy in that it is a more comprehensive approach and can help with some secured debt as well, the drawbacks are serious. Please make sure to look at all options before deciding to file for bankruptcy.

We would be happy to walk you down the process so that you can make the best and most informed decision for you and your family.