It’s a myth to think that everyone in Georgia who files for bankruptcy will lose all their possessions and become impoverished. If a person files for Chapter 13 bankruptcy, instead of having their assets liquidated, they will instead follow a three to five-year court-ordered repayment plan that will allow them to address their debts. Once the repayment period is up, many (but probably not all) of the person’s debts will be extinguished.

However, for a Chapter 13 bankruptcy repayment plan to be approved by the court, it must leave the debtor’s unsecured creditors — that is, creditors who do not have a right to any collateral — better off than they would be if the debtor had filed for Chapter 7 bankruptcy instead. Some unsecured debts may include credit card balances and past-due health care expenses. This is known as the “best interest of creditors” test.

For example, say a person files for Chapter 7 bankruptcy, and once all bankruptcy exemptions are applied to his or her case, the debtor is left with $15,000 worth of assets that can then be liquidated to pay unsecured creditors. To qualify for Chapter 13 bankruptcy in this same situation, it needs to be shown that a feasible repayment plan can be established that would pay the person’s unsecured creditors at least $15,000, if not more.

So, while not everyone will qualify for Chapter 13 bankruptcy, those who do may find that it preserves their assets, such as their home and automobiles. Keep in mind that both in Chapter 7 bankruptcies and Chapter 13 bankruptcies there are certain exemptions that allow debtors to keep much of their property. Nevertheless, those who find themselves overwhelmed by debts they cannot pay back may wish to learn more about Chapter 13 bankruptcy and whether it is the right choice for them.