Written by In the United States there are several types of bankruptcy. This includes different kinds that businesses can go through when facing bankruptcy, as well as the two main kinds that individual can file for, which are Chapter 7 and Chapter 13 bankruptcy. These names and the names of all the different kinds of bankruptcy refer to where they are found in the Bankruptcy Code of the United States Code.
Chapter 7 is what people usually think of as bankruptcy. As soon as you file for Chapter 7 all your bills, debts, collection efforts, and most pending lawsuits are put on pause. This protection kicks in immediately no matter how your bankruptcy case develops. Then, with Chapter 7, a trustee takes over most of your property. Things you can keep include clothes and old cars. Most other property, usually including your house, is liquidated by the trustee and sold off. The profit goes to your debtors. After that you are absolved of most kinds of debt, but some things (like student debt) you may still have to pay.
Chapter 13 is the less scary kind of bankruptcy. Again, like Chapter 7, just filing gives you temporary protection from all your debtors. Unlike Chapter 7, with Chapter 13 you can keep most or all of your property including a house. However, you are not immediately excused from your debt. Instead you must make a plan for an affordable monthly payment that will be divided among your debtors. For most people this will continue for three years after which your debt is absolved.
With both types of bankruptcy there is some important legal protection and relief from creditors however, if possible, Chapter 13 is usually best for most people.
