Filing for bankruptcy can be one of the most traumatic moments of someone’s life.

The stress of doing so doesn’t need to be made worse by confusion about how to declare bankruptcy.

If you find yourself in need of a fresh start make sure you know what you’re getting yourself in to.

Read this guide to find out about the different types of bankruptcies and determine which one works for your situation.

Types of Bankruptcies for Individuals

Filing bankruptcy is very different for individuals and businesses. Individual filers have two paths open if they need to declare bankruptcy.

Chapter 7 bankruptcy is an elimination of your debts. Chapter 13 works to help you restructure your debt and enter into a court-approved repayment plan.

There are a few basic steps you must follow to enter into bankruptcy proceedings. Before you file you need to gather your financial records together. You’ll also need a full list of all your assets.

Federal law requires you to speak to a credit counselor within 180 days before filing. Once this is done you can submit your petition to the court. It’s a very good idea to hire a bankruptcy lawyer, such as Rashad Blossom, to assist you.

When dealing with the court system in situations such as bankruptcy or divorce, a lawyer’s specific knowledge is a major benefit.

Chapter 7

Chapter 7 is what most people think of when they hear the word bankruptcy. In a chapter 7 bankruptcy, you seek to discharge your debts totally.

Once you’ve filed for chapter 7 a court-appointed trustee will determine the value of your assets. You are allowed to keep exempt possessions such as your home, any tools of your trade, the car you need for work, and any pensions or other retirement funds you have.

The trustee will then liquidate any nonexempt possessions. They’ll make a fair distribution of the proceeds to all your creditors.

Once this is complete all covered debts will be fully discharged.

Chapter 13

A chapter 13 bankruptcy is a way to set up a court-ordered payment plan. this doesn’t eliminate all debt. It instead reduces or eliminates part of your debt.

You must take the same basic steps as filing a chapter 7 bankruptcy to begin chapter 13 procedures. A judge will review your assets and debts and see if a payment plan is possible.

Chapter 13 plans are generally not approved if creditors will receive less than they would under a chapter 7 plan. The point of a chapter 7 plan is to create an equitable arrangement for all parties involved.

The major benefit of chapter 13 over chapter 7 is that you aren’t required to liquidate your possessions. So long as you make payments as ordered for 3-5 years your remaining debt will be erased.

Know What You’re Getting Into

Filing bankruptcy is a very serious matter with wide-ranging consequences. Make sure you’ve assessed all your options before you take the step of researching types of bankruptcies.

If you would like to find more useful finance and personal tips, check out our other articles here.