There are two primary types of personal bankruptcy: Chapter 7 and Chapter 13. Filing bankruptcy should be the last resort for consumers who are not able to satisfy their debts. A bankruptcy may stay on your credit report for up to 10 years, making it difficult for people to purchase a home, find a job, and obtain credit. Different states may have their own unique bankruptcy law, but for the most part, they follow general federal bankruptcy regulations.
Chapter 7 is also known as liquidation or straight bankruptcy. This form of bankruptcy allows a person to surrender their personal assets in exchange for discharge of their debts. This a common option for people who have little or no assets, make little or no money, and have a ton of debts. Over 90% of bankruptcies filed are "no-asset" cases, in which, garnishments are forbidden. Chapter 7 may take two to five months from the date of filing to the final discharge. There is a limit of one filing per 6 years.
Chapter 13 is also known as debt repayment or adjustment. Chapter 13 allows a person to temporarily put a hold on foreclosures and collections while they come up with a plan to repay their debts within a three to five year period. This form of bankruptcy lets you restructure your debts and change the interest rates on some of your loans.
Both types of bankruptcy may put a halt on foreclosures, garnishments, repossessions, collections, and eliminate unsecured debt. Both also provide certain exemptions which allow you to keep certain assets based on the ruling of the court.
Although most consumer debts may be dismissed, there are certain debts that personal bankruptcy cannot exempt you from. Those debts include:
- Child support
- Student loans
- Criminal fees and penalties
- Liabilities from drunk driving
- Fraudulent debts