How to choose the right bankruptcy option

Debtors who are faced with serious enough challenges may consider bankruptcy as a solution to help them get a fresh start. More than 48,000 people filed for some form of bankruptcy in Texas in 2012. Other states, such as Georgia and California, have seen even greater filings. Georgia, for example, had more than 72,000 bankruptcy filings in 2011 and California had even more.

These numbers highlight the need for this form of relief to a great many people nationwide. If you are contemplating bankruptcy, it can be overwhelming to decide if it is right for you and which form of bankruptcy is right for you. Taking the time to learn a bit about each of the common options can help you narrow down your decision.

The liquidation option-Chapter 7

The most common form of personal bankruptcy is a Chapter 7. This form of bankruptcy has two basic formats to it, one of which being a repayment structure and the other being a discharge structure. The nature of individual debts determines the path during the process.

Any unsecured debts, such as credit card debt or store charge card debt, are most frequently discharged and simply eliminated from the debtor's collective mass of debt. If you have a large amount of unsecured debt, this may be a good plan for you.

Secured debts, on the other hand, become part of a plan to repay the creditors appropriately. This can be done by the debtor relinquishing the secured asset which is then used to repay the creditor. One example of this is when a home goes back to the mortgage holder.

Not all secured debts result in the loss of assets in a Chapter 7 bankruptcy, however. Some creditors are willing to renegotiate with debtors to identify a new plan to repay the debt. This allows the consumer to keep assets but still pay the debt in a managed way.

The wage earner's option-Chapter 13

A Chapter 13 is a very structured option for repaying debts to creditors. In order to qualify for this plan, you must have a sufficient income to be able to pay the amount ordered by the court. Thus, this option is often referred to as the wage earner's plan.

During the repayment period, the consumer's assets are protected against repossession. Debtors pay a court-appointed trustee in monthly installments for a period between 36 and 60 months and then the trustee disperses payments to creditors from those monies.

The reorganization option-Chapter 11

Chapter 11 bankruptcies have historically been utilized primarily by businesses. However, some consumers can take advantage of this option if the amount of debt that they have is higher than what is allowed under the plan for a Chapter 13 bankruptcy. Both plans allow a reorganizing and repayment of debts.

Proper consultation makes a difference

Before proceeding with any bankruptcy option, it is always best to get the input of an experienced bankruptcy attorney. There are many nuances in the bankruptcy laws that may make a particular option better for you and a qualified professional can help guide you through that process.