If your debts in California have begun to get out of control, you may find yourself wondering if there is a way to get debt relief. Some people consider the option of declaring bankruptcy. 

While it is a difficult choice, bankruptcy can be a way out for people who are overwhelmed by exorbitant amounts of debt. If you are considering bankruptcy, you should understand the two main types of bankruptcy, chapter 7 and chapter 13, and the differences between them. 

Chapter 7 bankruptcy 

According to Experian, chapter 7 bankruptcy is typically better for people who have limited incomes. It is known as liquidation bankruptcy. 

In chapter 7 bankruptcy, you can sell off your nonexempt property and discharge many of your debts. You would use the money from your assets to pay off non-dischargeable debts, which is why it is considered liquidation. If your disposable income is high enough, you will be ineligible to apply for chapter 7 bankruptcy, and you will then be looking at chapter 13. 

Chapter 13 bankruptcy 

Chapter 13 bankruptcy allows you to keep your assets but requires you to pay off a portion of your debts. With this form of bankruptcy, known as reorganization bankruptcy, you agree on how much you can pay to your debtors and work out a payment plan. 

Chapter 13 is usually the better option for business owners who have a residual income but who still cannot pay off their debts in full. Chapter 13 will typically take much longer to resolve than chapter 7, but at the end of it all, once you have paid off your payment plan, the remainder of your debts will be discharged.