What kind of bankruptcy is best for you?

On Behalf of | Feb 4, 2025 | Bankruptcy

Filing for bankruptcy can give you a fresh start, but choosing the right type matters. In Massachusetts, individuals typically file for Chapter 7 or Chapter 13 bankruptcy, each with different benefits and requirements. Understanding your options helps you make the best financial decision.

Chapter 7 bankruptcy: Liquidation bankruptcy

Chapter 7 bankruptcy eliminates most unsecured debts, such as credit cards and medical bills. This option works best if you have limited income and few assets. Massachusetts allows you to protect specific property through state or federal exemptions, including equity in your home, personal belongings, and retirement accounts. However, if you own valuable non-exempt property, the court may sell it to pay creditors.

To qualify for Chapter 7, you must pass a means test, which compares your income to the state median. If your income is too high, Chapter 7 may not be available, and Chapter 13 could be a better option.

Chapter 13 bankruptcy: Repayment plan bankruptcy

Chapter 13 bankruptcy allows you to keep your assets while repaying debts over three to five years. This option suits individuals with a steady income who can afford monthly payments. It helps you catch up on mortgage arrears, car loans, and tax debts while preventing foreclosure or repossession.

In Massachusetts, your repayment plan depends on your disposable income and debt amount. You must pay some debts, like child support and recent taxes, in full, while others may be reduced. After completing the plan, you may discharge the remaining eligible debts.

Choosing the right bankruptcy for your situation

If you have little income and significant unsecured debt, Chapter 7 may be the best choice. If you need to protect assets and manage secured debts, Chapter 13 could be better. Consider your financial goals, income, and property before deciding which type of bankruptcy is right for you.