A chapter 13 bankruptcy filing implements a repayment plan on to the debtor which allows a consumer to keep their property by repaying debts to the bankruptcy court. In essence, this type of filing allows you to keep your assets and property by repaying the debts, in contrast to liquidating assets and property to eliminate debt, as is the case in Chapter 7 filings.

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A Chapter 13 filing will help you in many situations. With this legal option, you can save your home from foreclosure, get rid of second mortgages and other liens, avoid additional liens on other property (such as cars and boats), stop repossession on property, stop garnishments, and catch-up on back-due support payments. Additionally, Chapter 13 provides the option for a consumer to consolidate debt payments into a single, affordable monthly payment. With this consolidation, the debt can be paid off and discharged at the end of 3 to 5 years. During these years, you are protected from creditors.

Along with discharging debts, Chapter 7 filings offer some key benefits and protections to the consumer-filer. To name just a few: automatic stay protection and no tax consequences. Unlike a “debt settlement” or “debt negotiation,” where you settle with a creditor for less than the total amount owed and then have to pay income tax on the amount that is “charged off” or “forgiven” (after they send you a Form 1099 notifying the IRS of the “charge off”), you cannot be charged income tax on a debt that was discharged in bankruptcy.

Another thing that you need to consider prior to filing a Chapter 7 is whether you repaid any money to your friends or relatives within the “preference period” prior to filing bankruptcy. If you did, the Chapter 7 Trustee can (and likely will) sue that person to get the money back from them. This will likely force them to repay all or part of the money and/or cause them to incur substantial attorney fees to fight the Trustee. If you need to file bankruptcy quickly and are concerned about preferences, you can file a Chapter 13.