The formal definition of bankruptcy in law leaves the final decision about your finances up to a court, and the judge is ultimately responsible for liabilities and liquidation of assets in order to satisfy debts. Bankruptcy is harder to file for today than ever before, and it does not mean that all debts are wiped clean. There are several types of bankruptcies, and most of them mean restructuring of existing debt. There are two that apply primarily to consumers.

Chapter 7 Bankruptcy

Chapter 7 is the most straight forward and simplest of personal bankruptcy options. Usually a home or other property, which is a secured loan, will survive and the consumer will retain them. There are variations to Chapter 7 by state, however. Many types of debt are discharged, but child support, income taxes outstanding, student loans and fines are not included. Neither are spousal support or property settlements that are a result of a divorce action. This type of bankruptcy stays on the consumer's credit report for ten years from the date of filing. By law, a person wishing to file Chapter 7 must undergo at least 180 days of credit counseling, which negates it being a quick solution.

Chapter 13 Bankruptcy

This form of bankruptcy results in the creation of a payments plan, which is based on your earnings. If your income is stable, it is a type of installment plan that lasts from three to five years, depending on the plan. Chapter 13 is preferable to Chapter 7 and other types of bankruptcy because it permits the consumer to retain their assets. There is a cap on the amount that both unsecured and secured debts can amount to.

Chapter 13 is difficult and can dramatically effect lifestyle. The court can order the consumer to stop spending money in certain ways so that more will be available for repayment. It can order that private school tuitions are not necessary, for instance. Generally, the debtor agrees to a plan that will see creditors repaid over a three to five year period. This type of bankruptcy stays on a credit report for ten years, and the consumer is disallowed by the court to obtain additional credit without express permission. Chapter 13 does stop foreclosures but only until the completion of bankruptcy, and then it can be reinstated. This type of bankruptcy is tough, and statistics say that only about one third of them are ever completed.

Chapter 11, Chapter 12

Chapter 11 is primarily used by corporations, but in also by small business owners whose business is heavily intertwined with their personal finances. It is a reorganization type program, which can be influenced by creditors as well as the courts. Chapter 12 is a little used bankruptcy plan, and is designed for use by farmers and fishermen only. It works similar to Chapter 13 but provides more benefits via higher debt ceiling amounts and more exemptions.

State By State Variations

Even though bankruptcies come under the jurisdiction of federal courts, there are different state laws which impact how the proceeding is conducted. In some states, homes are not exempt and are often liquidated. Each state is different in how bankruptcy laws work, and how both consumers and creditors are protected.

Bankruptcy Fraud Today

Creditors will often object to a bankruptcy filing. The most successful way that they do this is to prove to the court that the consumer never intended to pay loans back. It works in more cases than one could believe. If the judge agrees with the creditor's assessment, the case will be dismissed.

Any bankruptcy requires attorneys and attorneys fees. Understanding bankruptcy laws for both the federal system and various state systems demands legal assistance to understand the best paths available. Bankruptcy is not easy nor does it magically wipe out debt.

(Disclaimer: please consult with an attorney for legal advice regarding bankruptcy laws and proceedings. This article does not constitute legal advice, implied or expressed.)

CreditorsRelief hopes that this information will be used as a general guide and not as legal advice. We are not a law firm, and hope that our clients can avoid bankruptcy through the use of debt settlement. Find out if one of our custom made programs will work for you by phoning   1 (877) 312-6478 .