Ask Dr. Don By Don Taylor, Ph.D., CFA • Bankrate.com

Is Chapter 13 bankruptcy for me?

Dear Dr. Don,
I am over $60,000 in debt with credit card bills. I am about to lose my mind over this, and I don't know which way to turn. I am seriously thinking of filing Chapter 13. I don't see any way to get rid of this debt due to an $8,000 cut in salary. I need advice on what I should do.
Tillie Tapped-out

Dear Tillie,
When you file a Chapter 13 bankruptcy you work with the bankruptcy court to establish a repayment plan over the next three to five years. Successfully complete that plan and the bankruptcy judge will discharge any remaining eligible debt. According to Nolo.com, only about 35 percent of Chapter 13 filers successfully complete their repayment plans.

You'll be put on an austerity budget while on the repayment plan, and your payments may be taken directly from your paycheck.

A Chapter 13 bankruptcy stays on your credit report for seven years while a Chapter 7 bankruptcy filing stays on your credit report for 10 years. The shorter reporting period with a Chapter 13 filing is because of your efforts to repay the debts with the court-approved repayment plan.

As unsecured debt, most, if not all, of your credit card debt could be discharged in a Chapter 7 bankruptcy filing. When you file a Chapter 7 bankruptcy the court can liquidate nonexempt assets to satisfy your creditors. You get to keep your exempt assets.

What is an exempt asset varies by state; this site lists exemptions by state. Depending on your overall financial picture, a Chapter 7 bankruptcy could make more sense than a Chapter 13 filing. Consulting with a bankruptcy attorney will help you decide which chapter is right for you.

Regardless of which bankruptcy chapter you choose, you'll face a long road in rebuilding your credit over the next 10 years, but you won't have to wait 10 years to re-establish credit or even to get a mortgage. You can typically qualify for new credit two to three years after a bankruptcy filing, but you'll pay higher interest rates because of your credit history.