Question: Should I file for bankruptcy if I cannot pay my debts?
There are two types of personal bankruptcy: Chapter 13 and Chapter 7. In general, if you have a steady income, Chapter 13 allows you to stop most debt collection in exchange for a promise to pay your available funds to creditors as part of a three-to-five-year repayment plan. With a repayment plan, you may be able to keep certain property such as your car or home, even if it was used to secure a loan. And if you fulfill your obligation, most remaining debt would be canceled at the end of the repayment period.
Under Chapter 7, however, you ask the bankruptcy court to cancel most of your debts because you do not have enough money or property to pay them off. (To qualify for a Chapter 7 plan, you would have to meet specific criteria related to your income and future ability to pay.) Certain assets would be sold to help pay off your creditors. With this type of bankruptcy, you generally would not be able to keep property that was used as collateral for a loan.
October 11, 2006