If you are considering filing for bankruptcy, but are unsure of which chapter to file or how to begin the filing process, there are a few options you can consider.

Chapter 7 versus Chapter 13

There are two main types of bankruptcy available to individuals. Chapter 7 bankruptcy involves a complete liquidation of assets and the sale of those assets to the debtor’s creditors. Chapter 13 involves a complete restructuring of personal finances in order to pay off debts.

In order to file for Chapter 7 bankruptcy, one must meet certain criteria, including passing a means test. The test evaluates the person’s median state income to decide if the he is worthy of the relief provided by filing for this type of bankruptcy. The mean is calculated by taking the individual’s income over the last six months, annualizing it, then comparing it to the income of households of the same size in the debtor’s home state. If the debtor makes less than or equal to the state median income, he qualifies to file for Chapter 7 bankruptcy.

Chapter 13 bankruptcy is not a liquidation of assets, but a restructuring of debts to make the payment process more manageable for the debtor. This process involves negotiating a payment plan between the debtor and creditors in which the debtor agrees to pay his debt partially or fully over the course of the agreement, which can last for up to five years. In that time, the creditor is forbidden from making collection calls or other debt collection efforts, unless the debtor defaults on the agreed payment plan.

In order to qualify for a Chapter 13, the person filing must have a steady income and be able to make payments to avoid fines, as the court system supervises the filing from the beginning to the end.