Declaring bankruptcy can mean different things depending on what "chapter" you choose. Chapter 7 bankruptcy and chapter 13 are the most common types of consumer bankruptcy, and they are very different in the way they take care of your debt problems. To help you decide which one you should use, you need to know what you wish from your bankruptcy filing. Read on to learn more.

Chapter 7

This is the most common chapter and for good reason. There is almost nothing as all-inclusive and fast-acting as a chapter 7 bankruptcy to eliminate both debts and collection activities.

The downside of this is the potential to lose property. A chapter 7 bankruptcy is known as the liquidation type of bankruptcy because you are meant to shed property to help pay some or all of your debts off. You may not be thinking about property losses when you contemplate filing but you should, particularly if you have extensive property holdings that have a lot of equity in them. In other words, property that is paid off or is almost paid off has more value to your creditors than property that has a large debt balance attached to it.

Some of your property is protected with personal and homestead exemptions so a careful evaluation of the value of your home, cars, boats, and other property and how much the exemption is in your state should be taken into consideration before you make your decision to file for a chapter 7.

This type of bankruptcy is ideal for filers who do not exceed the median income for their states as well. This rule is a fairly recent addition; the bankruptcy codes underwent an update that endeavored to keep wealthy people from using bankruptcy to turn their backs on their debts.

Another good thing about chapter 7 bankruptcy is the time factor. You can be completely done with this type of bankruptcy is as little as a few months.

Chapter 13

This type of bankruptcy is more of a reorganization plan for dealing with debt that has gotten too much to handle. Here, bargains are struck with your creditors that involve accepting lower payoffs, reduced interest rates and fees, and a repayment schedule that lasts for a number of years. If you want the whole thing to be over with quickly then this form of bankruptcy is not for you.

On the other hand, chapter 13 has no limits on your income and no means test to comply with, so it might be preferable for those with higher than median incomes.

No property is at risk with a chapter 13, so those with more to lose might want to go with this form.

Speak to your bankruptcy lawyer for more information.