What is bankruptcy?
Bankruptcy is essentially a procedure whereby individuals (or businesses) can obtain court ordered relief from all of their debts (with certain exceptions) in return for giving up (with certain exceptions) all of their property.
What are the types of bankruptcy?
The two most common types of bankruptcies individuals file are Chapter 7 and Chapter 13 bankruptcies:
Chapter 7 Bankruptcy: Liquidation of Assets
- This is a proceeding that will probably result in the discharge of your debts without the necessity of paying any money to any of your unsecured creditors or losing any of your property.
- This form of bankruptcy was designed to eliminate most unsecured debt – debt that is not connected to property, such as credit card, medical, and utility bills.
- This bankruptcy option offers a full discharge of debt – meaning that you will never again be responsible for repaying the debt that qualifies under Chapter 7.
- Bear in mind that not everyone qualifies for Chapter 7 bankruptcy. In order to qualify, the court must determine that you no longer have the means to repay your debts. You must also complete a pre-filing session with a credit counselor.
- Chapter 7 bankruptcy filings cost $306 as of May 2013.
Chapter 13 Bankruptcy: Adjustment of Debts for an Individual With Regular Income
- A bankruptcy option for individuals with a regular income, whether from wages, government benefits, or otherwise.
- Designed to stop foreclosure, and may allow you to stay in your home while you pay your debts that are past-due.
- The debtor develops a plan to make monthly payments on his or her debts, over a 3 to 5 year period. The amount of the monthly payments depends on the amount of monthly disposable income and the nature of the debts. At the conclusion of this period the debtor is discharged from liability for any unsecured debts (such as credit card, medical, utility bills) and hopefully is no longer delinquent on any secured debts (such as mortgages and vehicle loans).
- Bear in mind that not everyone qualifies for Chapter 13 bankruptcy.
- Please note that some debts that are not dischargeable in a Chapter 7 bankruptcy are dischargeable in a Chapter 13 bankruptcy.
- Chapter 13 filings cost $281 as of May 2013.