Bankruptcy Types

Chapter 7 and Chapter 13 bankruptcy are two different ways to get relief from overwhelming debt, and the right option depends on your financial situation. Both options can provide a path to a fresh start, but they work in very different ways. The best choice depends on your income, assets, and long-term goals. At Stanley Bankruptcy Law, we are here to help you understand which option fits your situation and what to expect moving forward.

CHAPTER 7 BANKRUPTCY: GETTING A FRESH START

Chapter 7 is often referred to as “straight” or “liquidation” bankruptcy. It’s designed to give people relatively quick relief by wiping out most unsecured debts, such as credit cards, medical bills, and personal loans. In many cases, the entire process is completed in just a few months from filing to discharge. To qualify, you generally must meet criteria that consider your income and expenses. While the term “liquidation” can sound intimidating, in reality it's not so scary. Most individuals who file Chapter 7 are able to keep their all their property—like a home, car, and personal belongings—using available exemptions. 

Chapter 7 is typically best for individuals who:

• Do not have enough assets or disposable income to repay their debts.

• Need immediate relief from aggressive creditor phone calls and harassment.

• Pass the "means test," which compares your income and expenses to the median in Kentucky.

• Are looking for a clean slate to rebuild their credit.

CHAPTER 13 BANKRUPTCY: REORGANIZE, RENEGOCIATE, & REPAY

Chapter 13, on the other hand, is a reorganization bankruptcy that allows you to pay all or a portion of your debts through a court-approved repayment plan. Instead of eliminating debts in a few months, you make a single monthly payment—based on your income, expenses, and what you owe—over a three-to-five year period. This payment is generally based on what you can afford after accounting for your income and necessary living expenses. 

This option is highly effective for people who have fallen behind on secured debts like a mortgage or car loan. The bankruptcy can stop a foreclosure or stop a repossession, and it can give you time to catch up on payments while keeping your home or car. At the end of the repayment period, any remaining qualifying unsecured debt is typically discharged or wiped out. 

Chapter 13 is often the right choice for individuals who:

• Have a steady, reliable income.

• Are facing foreclosure and want to save their home.

• Need to stop vehicle repossession and catch up on missed payments.

• Have non-exempt property they want to protect from liquidation.

• Want a plan to repay their debts over time with one affordable monthly payment.