Personal bankruptcy: Chapter 13 and Chapter 7

There are two kinds of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal court. There is a filing fee and Attorney fees are additional.

 

Chapter 13: Also known as reorganization, Chapter 13 allows debtors to keep property, like a mortgaged house or a car, that they otherwise might lose. Reorganization may allow you to pay off a default during a three-to-five-year period, rather than surrender any property.

 

Chapter 7: Known as straight bankruptcy, Chapter 7 involves liquidation of all assets that are not exempt in your state. Exempt property may include work-related tools and basic household furnishings. Some of your property may be sold by a court-appointed official or turned over to your creditors. You can file for Chapter 7 only once every six years.

 

Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts vary among states. Note that personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. And unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or lien on it. See our brochure on What is Bankruptcy?