CareOne Services, a national debt relief company, recently recognized Rhode Island as the state with the second most consumer debt per capita. According to Reuters, Rhode Island’s average consumer debt of $20,130 is only $100 behind Delaware for the dubious honor of having the “most indebted citizens.”

Large amounts of debt, of course, do not always indicate that someone was recklessly spending beyond his or her means. The recession led to millions of sudden layoffs, many properties are now secured by an underwater mortgage, and savings accounts were slowly depleted just to stay afloat. As a result, a sudden illness, injury or other major expenditure could amount to thousands of dollars in debt that nearly any family would struggle to afford.

Bankruptcy and Its Many Options:Chapter 7 and Chapter 13
Millions of hardworking Americans have filed for bankruptcy protection in hopes of gaining a fresh financial start as the economy begins to rebound. However, bankruptcy law can be very complex as there are many procedures involved and many options available to indebted consumers. Luckily, each option offers significant benefits that help jumpstart the road to financial recovery.

Chapter 7 bankruptcy is reserved for those who are truly incapable of repaying their debt, and those who earn too much income might not qualify. For these individuals a Chapter 13 “wage-earner” plan is often the way to go.  Under Chapter 7, debtors liquidate their assets to repay creditors. However, state and federal law allows people to keep certain property (clothing, food, vehicle and personal items) and often the family home is preserved.

Unlike Chapter 7, Chapter 13 debtors do not liquidate any of their assets and instead develop a three to five year repayment plan. During this plan, debtors slowly repay creditors using their disposable income. As long as the you, the debtor, remain current throughout the repament plan, all remaining dischargeable debt is removed when the plan is complete.