If you’re trying to pay off a substantial amount of debt, bankruptcy is one option that could help, although it requires you to give up quite a bit of financial control over your life. You have two common bankruptcy options, and these are called Chapter 7 bankruptcy and Chapter 13 bankruptcy. Each works very differently and has its own advantage and disadvantages.

Liquidate or Restructure Your Debt

Because of how they work, Chapter 7 bankruptcy is also known as liquidation bankruptcy, whereas Chapter 13 bankruptcy is known as restructuring or reorganization bankruptcy.

With Chapter 7, you’re giving permission for the court to liquidate any assets that aren’t protected under the bankruptcy laws set by the federal government and your state. The proceeds of these sales goes towards your debtors. This type of bankruptcy wipes out many types of unsecured debt, although there are certain debts it can’t wipe away. These include student loans and tax debts. For secured debts, the debtors can repossess the collateral on the loan.

With Chapter 13, you’re setting up a payment plan with the court that will result in your debt being paid off within three to five years. You can negotiate the total amount you’ll pay and you can have late fees and other charges added to your debt to avoid repossession of any property. According to the Bankruptcy Law Office, a Chapter 13 can stop a foreclosure if the bankruptcy is filed early enough in the process. With secured debts, you can choose to either make those parts of your payment plan or let the debtor repossess the collateral to be done with the debt. You need to monitor how you spend your money while you’re on that payment plan, and the court may require you to use zero-base budgeting that you show to them at any time.

How Long Your Bankruptcy Will Last

Chapter 13 bankruptcy lasts until you complete your payment plan, which will likely be three to five years. Chapter 7 bankruptcy typically lasts between three and six months.

Qualifying for Bankruptcy

One important thing to keep in mind is that you don’t have 100-percent control over which type of bankruptcy you choose. Your income determines which one you qualify for. If you make enough for a payment plan, you’ll need to file Chapter 13 bankruptcy. If you don’t, then you need to file Chapter 7 bankruptcy.

Bankruptcy is a major decision, and it’s important to understand as much as possible about it before you file. Think about which chapter you would likely qualify for, and then consult a bankruptcy lawyer to see if filing is a smart move.