If you have lots of credit card debt (which is unsecured debt), own your own home, but have limited income, bankruptcy might not always be the best choice for you. If you have some equity in your home, you might lose it in the bankruptcy. Learn when bankruptcy can help in this situation, and when you should turn to other nonbankruptcy options.
In most cases, your credit card debt will be discharged in a Chapter 7 bankruptcy. However, the bankruptcy trustee has the power to sell your home and use the proceeds to pay your creditors. Many states allow you to protect some equity in your home from the bankruptcy trustee (this is called an exemption). However, if an exemption doesn't cover all of your equity, you may lose your home in the bankruptcy. To learn more, see The Homestead Exemption in Bankruptcy.
If, on the other hand, you have little or no equity in your home (for instance, your house is under waetr), then Chapter 7 bankruptcy might be a good idea because it can discharge the unsecured debt. And if you live within the 11th Circuit (Alabama, Florida, and Georgia), you might be able to get rid of second mortgages or liens in some circumstances. (To learn more, see Can I Get Rid of Second Mortgages and Liens in Chatper 7 Bankruptcy?)
Chapter 13 bankruptcy is almost always the best option for debtors who have equity in their homes. In Chapter 13, you keep your property and pay back creditors, in full or in part, through a repayment plan that lasts three to five years.
You must pay your creditors enough to match the value of the home equity over the life of your plan, which will be three to five years. (To learn more, see Your Home in Chapter 13 Bankruptcy.) If you have a limited income, however, you may not be able to afford an acceptable payment plan in a Chapter 13.
If Chapter 13 or Chapter 7 bankruptcy are not a viable options for you, you should consider non-bankruptcy options, such as:
Get help from your local consumer credit counseling service (CCS). See, Choosing a Credit Counseling Agency.