Chapter 7 bankruptcy is sometimes called “liquidation” bankruptcy—it cancels most types of debt, but you have to let the bankruptcy trustee liquidate (sell) your nonexempt property for the benefit of your creditors. Most people who use Chapter 7 get to keep all their property, but some states are more generous than others in this regard.
In Chapter 13 bankruptcy you pay some or all of your debts over an extended period of time (usually three to five years) through a court approved repayment plan. In return you keep your property. Read on to learn about eligibility for Chapter 13 bankruptcy, how to file a petition, what happens to your property and debts, and more.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) made many substantial changes to bankruptcy law and procedures. The net effect of these changes is to make it somewhat more difficult to file for bankruptcy (especially Chapter 7 bankruptcy) and to impose a number of new rules and restrictions on bankruptcy filers.
Bankruptcy laws are federal, which means they were enacted by Congress and apply throughout the states. You can find the federal bankruptcy laws in Title 11 of the United States Code. The bankruptcy laws were overhauled and changed significantly in 2005; these changes have all been incorporated into the U.S. Code.
When you file bankruptcy, each creditor (the person or company to which you owe money) has a claim against your bankruptcy estate. This means that if there's any money in your estate, the bankruptcy trustee will use it to pay the creditors' claims. To get paid, each creditor must file a proof of claim form indicating how much you owe and the type of debt.
If you are considering bankruptcy, usually the two main options are Chapter 7 and Chapter 13 bankruptcy. There are pros and cons to each type, but in some situations Chapter 7 is the better choice. And in others, Chapter 7 is the only choice.