When filing for personal bankruptcy in Indiana, it’s important you understand your options so that you can make the proper financial decisions for you and your household. With that, the question is whether you should file for Chapter 7 or Chapter 13 bankruptcy? To answer that question, it’s necessary to know the differences between the bankruptcy types.

Chapter 7

Chapter 7 is often called liquidation bankruptcy because it involves a trustee selling your nonexempt assets to pay your debt collectors. In exchange, most of your debts may be discharged — including personal loans, credit card debts and medical bills — relieving you of the personal liability. This is essential when you can’t afford to repay your debts.

Not everybody qualifies for Chapter 7 bankruptcy, since to be eligible you have to pass a means test, which compares your income to the average median income in Indiana. If your income exceeds this, you don’t qualify to file under Chapter 7.

Chapter 13

If that’s the case, then Chapter 13 might be your only option, but that can be a good thing because Chapter 13 allows you benefits that are not possible under Chapter 7. Chapter 13 has you work with a trustee to set up a monthly repayment plan for you to pay down your debts over a period of three or five years.

If you’re behind on your mortgage payments, filing Chapter 13 bankruptcy initiates an automatic stay to temporarily stop a foreclosure on your home until the court approves your repayment plan. If approved, you may be able to prevent the foreclosure if you are able to repay the missed home payments during the course of your plan. Similarly, in Chapter 13, you can use your repayment plan to protect your car from repossession by paying down the debt as well as use the plan to safeguard some of your other nonexempt property.

Some types of debts do persist even after Chapter 7, but they can be discharged and repaid over time by filing Chapter 13. These debts can include taxes, homeowners’ association fees, court fees and marital debts in a divorce settlement agreement.

There’s a lot of details to understand when it comes to bankruptcy law, and talking to an experienced Indiana attorney can help you decide what legal options may be right for you and your family so you can look forward to a stable financial future.