Personal Bankruptcy

There are two types of bankruptcy that can be classified as personal bankruptcy: Chapter 7 bankruptcy and Chapter 13 bankruptcy. They are both personal bankruptcy but the bankruptcy laws governing Chapter 7 and Chapter 13 bankruptcies are different. The state bankruptcy laws on both types of bankruptcy are also different. Below are the overview of what each personal bankruptcy is.

Chapter 7 Personal Bankruptcy

Chapter 7 Bankruptcy is also known as the liquidation bankruptcy. Under the Chapter 7 personal bankruptcy laws, the debtor has to liquidate all his assets to pay off the creditors as much as possible. The bankruptcy court will appoint a bankruptcy trustee for your Chapter 7 bankruptcy case. The bankruptcy trustee is responsible for selling all your assets and paying off the creditors. Once all the assets have been liquidated and your debts have been paid off as much as possible, the creditors have to leave you alone.

The bankruptcy trustee is often a bankruptcy lawyer. Under the Chapter 7 bankruptcy laws, once all the assets are gone, there will be a court order that the debtor no longer owes anything to the creditors. This is called a discharging order because the debtor is discharged from any other obligation to pay any more debts. Creditors don't like it, of course, but there is nothing they can do about it.

In theory, you are supposed to lose all your assets in a Chapter 7 personal bankruptcy court but in practice people seldom lose much when filing for Chapter 7 bankruptcy. This is because people who file for chapter 7 bankruptcy are protected by the state bankruptcy law that allow them to keep alot of assets safe from creditors.

Chapter 13 Personal Bankruptcy

Chapter 13 personal bankruptcy is similar to Chapter 11 bankruptcy for corporations. In a Chapter 13 bankruptcy, the debtor comes up with a repayment (vs reorganization for corporations) plan to pay off creditors over time. This repayment plan usually lasts 3-5 years. The new bankruptcy laws make people filing for Chapter 13 bankruptcy pay creditors for a longer period of time. Unlike Chapter 7 bankruptcy laws, if you file for a Chapter 13 bankruptcy, you get to keep your assets.