Chapter 7 bankruptcy compared to Chapter 13 is when a trustee that is appointed by the courts to value and sell your property to pay your creditors. In some cases, you may be able to keep some personal items and possible real estate depending on the law of the state in which you, the filer, reside in and depending on the applicable federal laws. Chapter 13 on the other hand allows you to keep your property, but you must plan out and have the courts approve a repayment plan that fits into your budget. A trustee is court-appointed to oversee your case and collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan.

When considering filing for bankruptcy, there is one thing that you need to ask yourself, “Can I pay off my debt in less than five years?” If the answer is no, then it might be time. The reasoning for this is that bankruptcy code was written to give people a second chance, not to punish them. Bankruptcy is to be seen as a way out to those who through some combination of bad luck or choices have been devastated financially.

Upon denial of bankruptcy, there are still other ways to obtain relief. These include management programs, debt consolidation loans or debt settlement. Each of these typically require 3-5 years to reach resolution and none of them guarantees all your debts will be settled when you finish. The benefit of this is that there will be a great mental and emotional lift when all your debts are eliminated, and you have a fresh start.

Filing for bankruptcy is not a panacea to save you from all your financial burdens. You will most likely lose most of your property that are non-exempt possessions that have some value, or you will have to be placed on a debt-relief or wage-earner’s plan. This will give you an opportunity to develop a plan to help repay all your debt and keep what you have. Both will allow you to begin anew with a fresh start but filing for bankruptcy does impact your credit score making it hard to borrow money when you need it, not to mention that if you do chapter 7, the effects last for up to 10 years, for chapter 13, it about 7 years. Bankruptcy can also affect friends and family that decided to help you by co-signing a loan. If you are considering bankruptcy, your credit report and credit score probably are damaged already. Your credit report may improve, especially if you consistently pay your bills after declaring bankruptcy. Still, because of the long-term consequences of bankruptcy, some experts say you need at least $15,000 in debt for bankruptcy to be beneficial.

Bankruptcy does not necessarily erase all financial responsibilities.

It does not discharge the following types of debts and obligations:

• Federal student loans (unless you meet strict criteria)
• Court-ordered alimony and child support
• Debts that arise after bankruptcy is filed.
• Some debts incurred in the six months before filing bankruptcy.
• Some taxes
• Loans obtained fraudulently.
• Debts from personal injury while driving intoxicated.

It also does not protect those who co-signed your debts. Your co-signer agreed to pay your loan if you did not or could not pay. When you declare bankruptcy, your co-signer still may be legally obligated to pay all or part of your loan.