Chapter 7 Bankruptcy

• Filing for Chapter 7 bankruptcy protection is done when you have little or no income with which to pay your creditors. This can result from a serious long-term illness, a divorce that resulted in loss of a spouse's income, or having been unemployed with no hope for employment in the near future. Under Chapter 7 you must liquidate all unsecured assets to pay down as much debt as possible. The court will then legally wipe the slate clean for these debts.
  
  

Chapter 13 Bankruptcy

• If you are behind in payments for your mortgage, car, credit cards and other debts, but have a steady income, it is preferable to file for Chapter 13 bankruptcy. This allows you to keep your assets instead of liquidating them. Loan amounts are negotiated, and, based on your income, the amount due may be reduced to as low as 10 percent. A reorganization plan is then established to make regular installments that you can manage over a three or five year period to pay off those debts.
  
  

When Circumstances Change

• If there is an unexpected reduction in income while you are involved in the Chapter 13 repayment plan, you may find that you can no longer make payments. In this situation, you can apply for a conversion of your Chapter 13 protection to Chapter 7. A court will decide if you qualify for Chapter 7. This may be done by using a "means test," which is based on your current income and expenses. Under Chapter 7 you will have to liquidate some assets that you were previously able to keep under Chapter 13. You will also have to pay a fee for converting. If you have previously made the conversion, you cannot convert again.
  
  

Hire A Bankruptcy Attorney

• When filing for bankruptcy or converting from Chapter 13 to Chapter 7, it is wise to be guided through the process by a qualified bankruptcy attorney. Bankruptcy laws change and are very complex. You must be sure that every aspect of your filing is done correctly and in your best interest for your particular situation.