Most people in the United States are familiar with the term bankruptcy.
Bankruptcy, handled in the federal courts, can help a person get rid of any debt they have or make a plan to repay it.
However, can you tell the differences between each of the different chapters of bankruptcy? There are six chapters of bankruptcy in the United States. (The two most common chapters are 7 and 13)
Chapter 7 bankruptcy, sometimes referred to as liquidation bankruptcy, is the most common type of bankruptcy in the U.S., and the most basic form of bankruptcy. Chapter 7 provides liquidation of an individual’s property and then distributes it to creditors. Individuals are allowed to keep “exempt property.”
The courts may provide businesses that file chapter 7 with a trustee that operates the business for a period of time. In general, the trustee will take charge of asset liquidations and proceeds.
In chapter 13 bankruptcy, or a “wage earner plan”, an individual that has regular income is allowed to develop a plan to pay back parts, or all, of their debts. One advantage of chapter 13 is it allows individuals to avoid foreclosure on their houses, in contrast to chapter 7.