Personalized and affordable help for people under financial stress.

Types of Bankruptcy

Bankruptcy is a federal law enacted by the United States Congress.  There are four “chapters” of bankruptcy available to individuals and business entities: Chapter 7, 11, 12, and 13.  Typically, a consumer would file either a Chapter 7 or Chapter 13 bankruptcy.  A consumer may possibly file a Chapter 11 bankruptcy if his or her secured and unsecured debts exceed $1,010,650 and $336,900 dollars respectfully. 

Whichever bankruptcy you may file, an attorney will have to review your income for the last six months.  Due to the 2005 Bankruptcy Reform Act, a “means test” must be performed to make sure an individual qualifies for a Chapter 7 and also to determine how much money would have to be paid back to creditors in a Chapter 13.  Please consult with an attorney for specifics on the “means test.”

Chapter 7

A Chapter 7 bankruptcy is commonly referred to as a liquidation.  Typically, all assets a debtor owns, including legal or equitable rights, are put into a bankruptcy estate.  A Trustee is then assigned to the bankruptcy case to see if any of those assets in the estate can be liquidated to partially satisfy the debts the consumer has incurred.

Many of the assets in the bankruptcy estate can be protected from the Trustee by applying what are called “exemptions.”  Exemptions vary from state to state.  Many individuals who file a Chapter 7 bankruptcy end up having a “no asset” case, which means that they do not lose any assets through the bankruptcy.

Chapter 13

A Chapter 13 bankruptcy involves a Chapter 13 repayment plan.  Many consumers choose this type of bankruptcy if they are trying in good faith to pay back the majority of their debts, or if they are trying to save their house or restructure a car loan.  Some typical reasons for filing a Chapter 13 bankruptcy are listed below:

  • Stop a home foreclosure and give the consumer up to five years to become current on their mortgage.
  • Restructure a car loan to either reduce interest, principal, or in some instances, reduce both principal and interest on the car loan.
  • Pay back income taxes without having to pay back all of the accrued penalties and interest.

Pay back general unsecured creditors (credit cards or personal loans) without paying back all of the future interest accruing on the account.