Once you have determined that you need to file a consumer bankruptcy, you will need to determine which chapter bankruptcy is right for you.  If you are a family farmer or fisherman, you will likely choose to file under Chapter 12.  However, most consumers file under either Chapter 7 or Chapter 13.

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Chapter 7.  If the majority of your debt is unsecured, Chapter 7 may be a better choice for you.  You will be able to discharge all of your unsecured debt usually within 4 months.  Your credit score will take a hit but probably not as large as you expect because you are probably suffering multiple debts that have been delinquent for a while. 

 

Whereas bad debts will continue to bring your credit down as long as they go unpaid for up to 7 years, a Chapter 7 Bankruptcy will create a point from which your credit will begin to increase.  There is no limit on the amount of unsecured debt that may be discharged in Chapter 7.  However, you will first need to qualify under the "Means Test" which determines whether or not your monthly income is too great.  You may not discharge the following debts in Chapter 7 and will, therefore, need to consider Chapter 13:  child support, alimony, taxes, fines, penalties, criminal restitution, damages for injuries related to drunk driving, damages resulting from injuries caused willfully or maliciously, debts incurred through your fraud if the creditor does not object and federal student loans (if you are unable to prove that re-payment of the student loan would cause undue hardship).

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If you have assets that are not protected by an exemption and you wish to keep the assets, you will not want to file Chapter 7.  In a Chapter 7 Bankruptcy, the bankruptcy trustee will seek to confiscate the unprotected assets to pay creditors.

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Chapter 13.  If you are seeking to stop foreclosure or otherwise need to address a significant debt which would not otherwise be dischargable under Chapter 7 or if you have non-exempt assets you wish to keep, you may wish to file Chapter 13.  However, the amount of unsecured debts you wish to discharge must be less than $526,700 and your secured debts must be less than $1,580,125.  (If either your unsecured or secured debt amounts are higher than the limits, you may wish to pursue a Chapter 11 Bankruptcy.)  Chapter 13 requires that you receive a regular income, at least sufficient enough to pay your regular necessary expenses as well as any payment designated in the Chapter 13 payment plan.  For this reason, it is referred to as a "wage earner's plan."

 

The amount of the payment will depend upon your disposable income as determined by the Means Test as well as the value of an unprotected assets you own.  If your current monthly income is less than the applicable state median, your payment plan will usually be for payments over 3 years.  If your income places you over the applicable state median, the payment plan must provide for payments over a 5 year period.  You will be required to pay back "priority claims" such as alimony, child support and taxes in full over the course of the plan unless the party entitled to the payment agrees otherwise.  Any back payments you owe on a mortgage must be paid in full during the plan. 

 

You will be expected to pay all disposable income toward your unsecured debt.  Your disposable income will be determined by the Means Test.  If you are self-employed, the amount calculated to be your disposable income will exclude necessary ordinary operating expenses.  Often, your disposable income is much more than you thought it was.  You will also be required to report any changes in income during the plan.  A significant increase in income may cause the bankruptcy trustee to seek a modification of the plan.  A significant decrease in income may motivate you to request a modification of the plan.