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What Form of Bankruptcy is the Right Choice for Me?

The correct form of bankruptcy for you depends on the details of your situation.

What sort of debt do you have? Bankruptcy law divides debts into two broad categories: secured and unsecured. Secured debts are debts backed by collateral to reduce the risk of lending. For example, a mortgage is a secured debt because your house functions as collateral. Credit cards are a prime example of unsecured debts, but these also include medical debt and other personal loans.

If most of your debt is secured — e.g., most of your debt is mortgage debt and your car loan — and you want to keep your collateral, you only want to declare Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, you work with your bankruptcy attorney, the Chapter 13 bankruptcy trustee, and the bankruptcy court to come up with a plan to pay off some of your unsecured and nearly all of your secured debt through regular monthly payments.

If most of your debt is unsecured and you have a relatively low monthly income or no monthly income at all, Chapter 7 bankruptcy — also known as liquidation bankruptcy — may make the most sense for you. In a Chapter 7 bankruptcy, the Chapter 7 bankruptcy trustee collects all of your non-exempt assets, sells them, and uses the money to pay off your creditors.

A knowledgeable bankruptcy attorney can advise you about whether Chapter 7 or Chapter 13 bankruptcy is the right choice for you.

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