Sometimes a debt problem is not going to be fixed by cutting another expense or negotiating one card. Bankruptcy exists to address debts that cannot be paid under the ordinary terms. It has costs, rules, and limits, but it should be understood as an option rather than a moral verdict.
What Chapter 7 generally does
Chapter 7 is often called liquidation. A trustee may sell nonexempt property to pay creditors, but many individual cases have no nonexempt assets available for sale. Eligible individuals may receive a discharge that ends personal liability for many unsecured debts.
Not every debt is dischargeable. Some taxes, support obligations, certain student loans, and debts arising from particular conduct can have special treatment. A valid lien generally does not disappear merely because personal liability is discharged.
Eligibility rules include a means test in some consumer cases. Property exemptions vary by applicable law.
What Chapter 13 generally does
Chapter 13 is designed for eligible people with regular income. The debtor proposes a court-supervised plan to pay some or all obligations over three to five years. It can be useful for catching up on certain secured debts, including missed mortgage payments, when the plan is feasible.
Chapter 13 requires sustained payments. The court and trustee have roles in reviewing and administering the plan. If payments cannot be made, the case may be dismissed or converted depending on circumstances.
The automatic stay
Filing a bankruptcy petition generally creates an automatic stay that stops many collection efforts while the case is pending. There are exceptions, limitations for some repeat filings, and procedural requirements. It is not permission to ignore court notices or assume every creditor action stops permanently.
Questions that matter before comparing chapters
- What assets and property exemptions are involved?
- Are the largest debts secured or unsecured?
- Is there enough regular income to support a plan?
- Are any debts likely to survive discharge?
- Is a foreclosure, repossession, or lawsuit already underway?
- What filing, counseling, and other costs apply?
Because exemptions and eligibility rules depend on the facts, a generic online quiz cannot reliably choose a chapter for a specific person. The U.S. Courts’ Bankruptcy Basics pages are a sound starting place for learning the terms.