Overview

Bankruptcy is a process that allows consumers and businesses to repay some or all of their debts under the protection of the federal bankruptcy court. For the most part, bankruptcies can be divided into two types -- liquidation and reorganization. Chapter 7 bankruptcy is called liquidation bankruptcy because trustee may take and sell ( liquidate ) some of your property to pay back some of your debt. However, you can keep property that is protected (or exempt ) under state law. There are several types of reorganization bankruptcies, but Chapter 13 is most commonly used by consumers. In Chapter 13 bankruptcy, you keep all of your property but must make monthly payments over three to five years to repay all or some of your debt. Both Chapter 7 and Chapter 13 bankruptcy have many rules regarding which debts are covered, who can file, and what property you can and cannot keep. Chapter 7 Bankruptcy Chapter 7 bankruptcy can be filed by individuals (a personal or consumer bankruptcy) or businesses (a nonconsumer or business bankruptcy). A Chapter 7 bankruptcy typically lasts three to six months. Property liquidation. In Chapter 7 bankruptcy, some of your property may be sold to pay down your debt. In return, most or all of your unsecured debts (that is, debts for which collateral has not been pledged, such as medical debts and most credit card debts) will be erased. You get to keep any property that is classified as exempt under the state or federal laws available to you (such as your clothes, car, and household furnishings). Secured debt. If you owe money on a secured debt (for example, a car loan for which the car is pledged as a guarantee of payment), you have a choice of allowing the creditor to repossess the property; continuing your payments on the property under the contract (if the lender agrees); or paying the creditor a lump sum amount equal to the current replacement value of the property. Eligibility for Chapter 7. Not everyone can file for Chapter 7 bankruptcy. For example, if your disposable income is sufficient to fund a Chapter 13 repayment plan -- after subtracting certain allowed expenses and monthly payments for certain debts -- you won't be allowed to use Chapter 7 bankruptcy. Chapter 13 Bankruptcy Chapter 13 bankruptcy is also known as wage earner bankruptcy because you must have a reliable source of income to repay some portion of your debt. Repayment. When you file for Chapter 13 bankruptcy, you must propose a repayment plan that details how you are going to pay back your debts over the next three to five years. The minimum amount you'll have to repay depends on how much you earn, how much you owe, and how much your unsecured creditors would have received if you'd filed for Chapter 7 bankruptcy. Secured debts. If you have secured debts, Chapter 13 gives you the option to make up missed payments to avoid repossession or foreclosure. You can include these past due amounts in your repayment plan and make them up over time. For more information click on BUY BUTTON

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