You can choose the kind of bankruptcy that best meets your needs (provided you meet certain qualifications):

Chapter 7 Bankruptcy - Also called liquidation, is the most common type of bankruptcy and completely eliminates your dischargeable debt forever. Individuals or businesses who are granted Chapter 7 bankruptcy discharge have proven to the court that they have no realistic way to repay their debt over the course of the next three to five years. 

When Chapter 7 Bankruptcy relief is awarded, the debtor is legally excused from having to repay any unsecured debts, and most debtors are able to keep all properties. Typically it takes about four months after the bankruptcy case is filed in the court, for a Chapter 7 bankruptcy case to be discharged.

Certain types of debts cannot be eliminated through Chapter 7 bankruptcy including student loans, child support, alimony,  and most taxes.

 

Chapter 13 Bankruptcy – An individual or a business who does not qualify for Chapter 7 bankruptcy, may qualify to file  a Chapter 13 bankruptcy petition, which allows individuals to pay their debts in a plan over three to five years with zero interest.

Debtors may pay only a percentage of their debts and get a complete discharge at the end of the term of the plan, depending on the available disposable income after necessary living expenses, and the value of their non-exempt assets and personal property.

Chapter 13 Bankruptcy is also helpful to individuals who want to save their house or other real property from foreclosure sale.

Chapter 13 Bankruptcy allows individuals to resume their monthly mortgage payment and cure the default in the mortgage payment in a plan, through monthly payments spread over a three year period.

Chapter 12 Bankruptcy – Like chapter 13 bankruptcy, but it is only for family farmers and family fishermen.

Chapter 11 Bankruptcy – This is used mostly by businesses. In chapter 11 bankruptcy, you may continue to operate your business, but your creditors and the Bankruptcy court must approve a plan to repay your debts.

There is no trustee unless the Bankruptcy judge decides that one is necessary; if a Bankruptcy trustee is appointed, the Bankruptcy trustee takes control of your business and property.

If you have already filed bankruptcy under chapter 7 Bankruptcy, you may be able to change your Bankruptcy case to another chapter.

      Bankruptcy Automatic Stay                

The filing of a Chapter 7 bankruptcy petition  “automatically stays” most actions against the debtor or the debtor’s property. The Bankruptcy automatic stay arises by operation of law and does not require legal action.

 As long as the automatic bankruptcy stay is in effect, creditors cannot initiate or continue any collection action, lawsuits, wage garnishment, or even telephone calls demanding payments.

 Once the bankruptcy petition is filed with the Bankruptcy court, creditors receive notice of the bankruptcy filing from the clerk of the bankruptcy court and are legally prohibited from taking any further collection actions against the debtor.  

One of the reasons people file bankruptcy is to get a “discharge.” A bankruptcy discharge is a court order by bankruptcy court, which states that you do not have to pay most of your debts. Some debts cannot be discharged in bankruptcy. For example, you cannot discharge debts for–

• most taxes;
• child support;
• alimony;
• most student loans;
• court fines and criminal restitution; and
• personal injury caused by driving drunk or under the influence of drugs.

The bankruptcy discharge only applies to debts that arose before the date you filed. Also, if the bankruptcy judge finds that you received money or property by fraud, that debt may not be discharged.

It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt in your bankruptcy case, for example, it is possible the debt will not be discharged. The bankruptcy  judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a court order.

You can only receive a chapter 7 discharge once every eight years. Other rules may apply if you previously received a discharge in a chapter 13 case. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement (see below) or any other kind of document to do this.

Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged in bankruptcy, but the creditor can still take the property. You may continue making payments on a secured debt and keep the property.

Even if a debt can be discharged in bankruptcy, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the court. Reaffirmation agreements in bankruptcy are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Bankruptcy Reaffirmation agreements–

• must be voluntary;
• must not place too heavy a burden on you or your family;
• must be in your best interest; and
• can be canceled anytime before the court issues your discharge or within 60 days after the agreement is filed with the court, whichever gives you the most time.

If you are an individual and you are not represented by an attorney, the bankruptcy court must hold a hearing to decide whether to approve the reaffirmation agreement. The bankruptcy reaffirmation agreement will not be legally binding until the bankruptcy court approves it.

If you reaffirm a debt in bankruptcy and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged in bankruptcy and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you.