People can file two types of bankruptcy in the United States: Chapter 7 and Chapter 13.
Chapter 7 bankruptcy is often called “liquidation” bankruptcy because you may have to liquidate some of your possessions to repay what you owe. Depending on where you live, however, some things like your home, car, clothes, and retirement savings may be protected.
Chapter 13 bankruptcy is also called “reorganization” bankruptcy. It lets you structure a repayment plan which details how you will pay back your mortgage, property taxes, credit cards, etc., over the next few years.
You can use either Chapter 7 or Chapter 13 to get rid of your student loans, but Chapter 7 is often the better option because it’s cheaper and faster. With Chapter 13, you have to repay banks, lenders, utility bills, etc., over several years. But with Chapter 7, you just add up your assets, file the bankruptcy petition, meet with the trustee, and a few months later, the court will sign a discharge order that gets rid of most of your unsecured debt. Keep in mind that you’ll still owe certain taxes, child support, alimony, and student loans.
Nearly everyone prefers Chapter 7 bankruptcy because it’s cheaper and quicker than Chapter 13. But not everyone can go that route. Your monthly income must be less than the state median for your household size to qualify. If it’s more, you must pass the “means test.” This test looks at all the money that comes into your home and your expenses.
No matter which type of bankruptcy you choose, you’ll be able to file an adversary proceeding to discharge your student loans soon after.