About Bankruptcy

Chapter 7 vs. Chapter 13

The most common forms of bankruptcy filings for individuals are called Chapter 7 and Chapter 13 petitions.

Here are the basics about both, though a debtor considering this action should consult an attorney who specializes in bankruptcy proceedings:

A Chapter 7 filing is called liquidation. In this case, a trustee assembles the creditor's non-exempt assets, sells them and devises a formula to fairly distribute the proceeds to creditors. It a fairly orderly process that can wipe the slate clean for the debtor. The debtor's home and car may be exempt under this process, meaning that they can be kept. But this type of filing does not prevent a bank or other lender from seizing that property if the debtor is behind on the payments.
Debtors who have valuable assets they hope to keep are the primary users of Chapter 13 filings. In this case, the debtor proposes a plan to repay creditors over three to five years. This choice could be appropriate for individuals with a regular source of income who are in danger of losing their homes to foreclosure and/or their cars to repossession.