There are two basic types, or Chapters, of bankruptcy: Chapter 7 and Chapter 13. Which bankruptcy you choose depends upon the type of debt you have and whether you may need a little ongoing help managing your finances after you file.

A Chapter 7 filing will rid you of your dischargeable debt – credit cards, medical bills, payday loans and other basic debts. However, Chapter 7 leaves you with other types of debt.

If you have recent income tax payments, for example, or if you have a note on a car you want to keep, you must deal with these on your own — Chapter 7 does not cover these debts. Another example of an issue that can arise with Chapter 7 filing occurs if you are behind on your mortgage. Chapter 7 may be able to help you with your budget by cleaning up other debts, but it will not stop foreclosure proceedings on your house. If you wanted to keep the residence, you would have to deal with your mortgage company on your own.

Chapter 7 is quick, efficient and cheap, but it’s not for everyone. Sometimes you need a few extra tools in the toolbox; and that is where a Chapter 13, or reorganization filing, becomes a good option.

In general, Chapter 13 will discharge the same types of debts as Chapter 7. Further, a Chapter 13 filing allows you to address the debts the Chapter 7 does not: for instance, you can reduce the taxes you have to pay the IRS, you may be able to reduce the interest rate, or the balance, on a car note, and you are able to stop a foreclosure and catch up on your mortgage over time. You can even get your lawyer paid through the plan, which means you can get filed and protected without having to pay a dime up front.

The Chapter 13 bankruptcy does this by setting up a payment plan. For the next three to five years, you are under the protection of the Federal Bankruptcy Court. You use this time to pay down the debts that would otherwise survive the bankruptcy. Essentially, you have the court, your lawyer and the Chapter 13 Trustee all working to assist you in your finances. It’s a fantastic tool.

Of course, there is a trade off. Chapter 13 cases are generally more expensive. You have to deal with the Court, and be under its supervision, for the life of the plan. Finally, you have to complete your payments in order to receive your discharge. Nationally, fewer than 50% of Chapter 13 filings end in a discharge. Our own average, by the way, is about 80%.

Either Chapter is great; both get you to where you need to be and the choice is whether you need a little extra help in achieving your financial goals or can go it alone after filing. As we review your paperwork, we’ll get a pretty good idea of which way we recommend that you go!

One of the most common questions I get asked is what the differences are between Chapter 7 vs 13 Bankruptcy. Feel free to give us a call at 785-379-3600 for a FREE Consultation over the phone or in person or you can email us now.