If you’re in financial trouble but still have a regular income, then you may not qualify to have all of your unsecured debts — for example, medical bills, past-due utility bills, credit card debt, etc. — discharged through Chapter 7 bankruptcy. People who qualify for Chapter 7 protection must pass a means test showing that there isn’t enough income to establish a repayment plan.

Repayment plans in personal bankruptcy are required under Chapter 13, which offers some important advantages over Chapter 7. For example, Chapter 13 lets you discharge more kinds of debt than are allowable with Chapter 7. People who want to prevent or stop foreclosure, repossession and wage garnishment may also benefit from Chapter 13. Essentially, Chapter 13 is a reorganization bankruptcy whereby you can present to the court a plan for repaying part or all of your debts.

Another benefit of Chapter 13 bankruptcy is that people who have co-signed on a mortgage or other loan are also protected. A Chapter 13 filing puts a stay on creditors’ collection efforts, so a co-signer, who is also liable for the debt, is also protected.

To file for Chapter 13 protection, the filer has to organize a considerable amount of materials to show to the court. These materials will include a detailed outline of liabilities and assets, an expense and income schedule, and any contracts or leases to which you are obliged. The best way to gather these materials and establish a workable repayment plan is seek help from a debt relief attorney.

Source: Ebony, “The Different Degrees of Bankruptcy, Explained,” Lynnette Khalfani-Cox, June 19, 2014