What Everyone Should Know About Chapter 7 And Chapter 13 Bankruptcy

Bankruptcy can be a way to give yourself a fresh start when you are unable to pay back your debts. However, there are several ways to file for bankruptcy, which can make it difficult to figure out which one is best for you. You'll likely be picking between Chapter 7 and Chapter 13 bankruptcy, which are used by individuals rather than businesses. Each is very similar throughout the entire process.


Bankruptcy can be used by those suffering significant financial hardships, and it works by liquidating assets, paying off as much debt as you can, and discharging the rest. Since so many of your debts can be discharged, the person filing for bankruptcy must qualify through a means test. This is when their income and expenses are looked at and compared against other people in their community. Since the means test is based on the area where you live, it is difficult to know if you'll qualify until you start the process.

Disclosers and Filing

Once you qualify, all your income, assets, liabilities, and expenses will be disclosed. You'll review these disclosures with your lawyer since any debt that is not disclosed cannot be discharged later. It is very important that the disclosures are completely accurate before you file. Of course, you'll want to get a lawyer specialized in Chapter 7 bankruptcy law as opposed to Chapter 13 if that's the route you take.

Automatic Stay

Once the paperwork has been submitted and accepted, you will receive what is known as an automatic stay. This prevents all of your creditors from contacting you regarding the debts that you owe and forces them to go through the legal channels in order to dispute those discharge requests. The automatic stay will continue until your bankruptcy is approved or denied.

341 Meeting

There will be a 341 meeting, which is also known as a creditors meeting. This is the opportunity where creditors can request that their debts not be discharged as part of the bankruptcy. For example, they may demonstrate how you took on the debt with full knowledge of filing for bankruptcy. You'll need to testify under oath about your debts so that a decision can be made about challenges brought up by creditors. 


A judge will make a decision on if all of your debts can be discharged, and if so, the legal process will begin to get rid of those debts for good. If you use Chapter 7 bankruptcy, you'll need to liquidate assets in order to pay off a portion of your debts. If you use Chapter 13, you'll have a repayment plan that fits within your means to pay back certain creditors a portion of the debt that you owe. Once that payment plan has been fulfilled, your debts will be discharged.