Help From a Phoenix Bankruptcy Lawyer - We've talked a little bit in the past about the basic differences between Chapters 7 and 13 now we would like to give you a little bit more in-depth view of Chapter 7 versus Chapter 13?

These Chapters are specifically for consumers. They're for the individuals. Chapter 7 is for an individual and Chapter 13 is also for individuals.

There are other Chapters in the Bankruptcy Code. There's a Chapter 12. If you were a small farmer or a small fisherman you would be filing a Chapter 12. If you were a small business or mid-sized business, you would be filing a Chapter 11.

With our recent economy, unfortunately, governments and government organizations can file bankruptcy too. And they file under a Chapter 9.

Going back to Chapter 7, this is the favorite Chapter for many people. The reason is that you liquidate all of your debts meaning that at the completion of your bankruptcy, you're not responsible for paying back your creditors. You can truly have what they call a "fresh start" which is the intention of a Chapter 7.

In order to qualify for a Chapter 7 there are some income criteria. The first income criteria for a single person is $42,000 a year. If you make $42,000 or less as a single person, you would qualify for a Chapter 7.

If you were a couple, you could make a total of $56,000 together to qualify for a Chapter 7.

There are many instances where individuals make more but because you're able to deduct your living expenses: namely your mortgage payments and your car payments: then you may be able to earn more but still qualify for a Chapter 7.

The other interesting aspect of a Chapter 7 is you have to have liquidated all your debts. But in order to get there, aside from the income requirement, there are a few other requirements.

For example, your car it can't be worth more than $5,000 if you're an individual and a couple can have a total of two vehicles not worth more than $10,000.

Now a question often asked is, "Wow. I can't drive a $5,000 car. That's just not possible." And the way that you get to the $5,000 number is their Kelly Blue Book value of your vehicle and subtract the loan that you have on it.

For example, say you have a car that's worth $10,000 however your loan is $15,000. You're actually negative. So the point is you can keep that vehicle in bankruptcy which is a question often asked.

The other issue in Chapter 7 is keeping your house. And the answer is yes, you can keep your house. You do need to be current when you file and that's an important aspect.

A Chapter 13 doesn't have the income restrictions that we talked about earlier. So for people who are high income earners or earning more than what We've discussed so far, they may want to consider a Chapter 13.

A really good reason to consider a Chapter 13 is because you can strip down your second mortgage on your house. Strip down is something that's talked about all the time. What that literally means is...

For example, your house is worth $200,000 and your first mortgage is $150,000 but your second mortgage is $100,000. So really your house is upside down by $50,000. You can strip off that $50,000 and take all of your other debts, credit card debt, maybe your car debt, maybe personal lines of credit and put it in a big pile in my bankruptcy.

You advise the court, "This is how much you can pay on that particular pile of debt." So your second that you stripped off; that $50,000 that you got rid of, you put it in that pile. you tell the court after you pay all of your reasonable and ordinary expenses, your mortgage, your student loan, back taxes if you have any, day care, child support, food, living expenses, then after all that is calculated, the remainder is the payment that you make toward your unsecured debt. After three to five years, your finished.

Let's say after you have done all that, you add up everything and have $150,000 of unsecured debt. You have $50,000 in your house. You have maybe $75,000 in your credit card bills. And the balance can be for your cars. For example, your cars are three years or older. You can actually take the difference of your loans and subtract it from the value and it goes in the same place that the mortgage went, back to your unsecured debt.

So you pay on that for a period of years and whatever you can't pay is discharged at the end. Let's say your payment is anywhere from $500 to $600 a month and you pay on that for three to five years. At the end of it your not actually paying that $150,000 in debt. Your simply paying half of that or less than half of that. And that’s the difference between Chapter 7 and Chapter 13.

In Chapter 13 you're really reorganizing your debt. You're not getting rid of it; you're getting rid of a part of it. Consider it a debt settlement but with legal protection.

Those are two really strong differences between a Chapter 7 and a Chapter 13. When you would consider them is really if you are certain that you want to hold on to your home, that you're behind in your payments, and you believe that your house is upside down, meaning that your mortgage balance is greater than the value of the house, you should consider a Chapter 13.

Also another good reason is because your car is maybe not worth as much as the loan. For that, people leave their Chapter 13 bankruptcy with a home that's at market value and with cars that are at market value.

Those are the two big differences. That's what you should be looking at. So what's really important is to consult with a bankruptcy attorney as early as possible so you can start planning which route you're going to take and which is most likely.

To get the best benefit from bankruptcy, planning is key. Treat it like a financial plan. If you're considering a Chapter 13, that is going to be on your credit report for a much shorter period of time.

It's also going to show that your debts are paid. For high income-earning people who also have homes that you want to hold on to, you can maintain much better credit in a Chapter 13 than in a Chapter 7.

Meeting with a bankruptcy attorney is key to all this planning.