Bankruptcy laws where created by the government to assist those who have become no longer able to manage their debts and cannot continue to make their monthly payments. Bankruptcy often viewed as the easy way for irresponsible borrowers to walk away from repayment obligations and allows individuals to have some of their debts discharged and a structured payment plan to be folowed for those accounts not discharged by the courts. There are a total of four types of bankruptcies but only two are commonly used by consumers and the type of bankruptcy filed depends on the financial situation of the person filing.
Chapter 7 ( Liquidation) - A Chapter 7 bankruptcy is one where all credit accounts will be paid as much as possible with the proceeds from liquidating all assets belonging to the filer and any remaining debt not covered by these proceeds will be discharged by the court and all debt obligation will then be wiped clean with some exceptions. The federal government however does allow filers to retain some personal property when filing Chapter 7 which are referred to as exemptions and include assets such as their primary residence and personal items like clothing. The debts that will not be forgiven by a Chapter 7 bankruptcy are child support, alimony, taxes and student loans.
Chapter 13 (Reorganization) - A Chapter 11 bankruptcy involes a structured repayment plan adminstered by a court appointed trustee for the repayment of all debts owed over a long period of time. Certain income and and debt reqirements musty be met in order to be eligible to file a Chapter 11 Bankruptcy.
