What is Personal Bankruptcy - Thomas K. McKnight LLP
Kinds Of Personal Bankruptcy
When it comes to individuals, as opposed to businesses, there are two common types of bankruptcy: Chapter 7 and Chapter 13. Below is a brief summary of how each type works:
Chapter 7: This type of bankruptcy basically liquidates your assets in order to pay your lenders. Some assets-- typically consisting of part of the equity in your home and automobile, personal items, clothing, tools required for your employment, pensions, Social Security, and any other public benefits-- are exempt, meaning you get to keep them.
However your remaining, non-exempt assets will be liquidated by a trustee assigned by the bankruptcy court and the proceeds will then be distributed to your creditors. Non-exempt assets may consist of property (other than your primary home), recreational vehicles, boats, a second automobile or truck, collectibles or other valuable items, bank accounts, and investment accounts.
At the end of the process, most of your debts will be dismissed and you will no longer be under any obligation to pay off them. However, particular debts, like student loans, child support, and taxes, can not be dismissed. Chapter 7 is generally chosen by people with lower income and few assets.
Chapter 13: In this kind of bankruptcy, you are allowed to retain your assets, but have to agree to repay your debts over a given period of three to five years. The trustee collects your repayments and distributes them to lenders. Chapter 13 bankruptcy is normally chosen by consumers that want to retain their non-exempt property intact or buy time against repossessions or property seizures.