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There are two types of consumer bankruptcy. Each is intended to help consumers in financial crisis, but the solutions offered are very different. Chapter 7 bankruptcy, or liquidation, is more common. Chapter 7 bankruptcy was designed to eliminate a lot of unsecured debt (credit cards, medical bills, old utility bills, unsecured personal loans, etc.), and can generally be completed within just a few months. In a Chapter 7 bankruptcy case, the trustee can liquidate (sell) non-exempt assets to pay creditors, but most people who file for Chapter 7 bankruptcy don't have any non-exempt assets, and so are able to keep their property while eliminating unsecured debts. Chapter 13 bankruptcy is often the solution of choice for people who have a lot of secured debt, such as car loans and mortgages, and want to keep the property that serves as security for the loans. In a Chapter 13 case, the debtor enters into a repayment plan that allows 3-5 years to catch up on past due payments. Since the bankruptcy law change in 2005, there have been a lot of misunderstandings about bankruptcy. For instance, many people have been led to believe that almost no one can file for Chapter 7 bankruptcy anymore. That's simply not true. Although the new bankruptcy law that took effect in October, 2005 added some hoops for debtors to jump through, consumer bankruptcy attorneys and credit counseling agencies have found from the beginning that the Chapter 7 means test actually prevents very few debtors from filing under Chapter 7. The safety net of bankruptcy is still available to most consumers in financial crisis.
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Content on Debt.com is for informational purposes only. Rates & offers from advertisers shown on this website may change without notice: please visit referenced sites for current information. Per FTC guidelines, this website may be compensated by companies mentioned through advertising, affiliate programs or otherwise. Debt.com is a purposeful online destination for consumers who are looking for information about financials services, including credit cards, home loans, auto loans, debit cards and debt counseling. In addition to providing information on a variety of financial subjects, Debt.com also connects its visitors to third party providers of information, products and services.
