Bankruptcy

Types of Bankruptcy

There are many different types of bankruptcy, called different "chapters." The majority of individual bankruptcies are either Chapter 7 or Chapter 13.

In a Chapter 7, or "straight bankruptcy," you would agree to turn over all of your non-exempt assets to a Chapter 7 trustee. The trustee will then sell your assets and distribute the money to your creditors. The overwhelming majority of consumer Chapter 7 cases are considered to be "no asset" cases and the creditors without security, like a house or a car, get nothing.

Chapter 13, or "reorganization," allows debtors to keep property that they might otherwise lose, such as a mortgaged house or car. This type of bankruptcy is available if your secured and unsecured debts fall within a certain range. You would propose a plan based on your available disposable income to pay your creditors over a three to five year period. The secured creditors usually get most of their debt repaid while the unsecured can get anywhere from 0% to 100% of their debt. Once the plan is approved you would make a single monthly payment to the Chapter 13 trustee who in turn distributes the funds to your creditors. This works much the same way as a credit counseling debt repayment plan.