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Bankruptcy is a right provided Federal Law and the U.S. Constitution to people who are in debt and need a fresh start. The two types of bankruptcy most commonly filed by individuals are Chapter 13 (wage earner plans) and Chapter 7 (liquidation).

Chapter 7 – Liquidation.

Chapter 7 is designed for debtors in financial difficulty that do not have the ability to pay their existing debts. The purpose of filing a Chapter 7 case is to obtain a discharge of your existing debts. A discharge is a Court order that states that you do not have to pay most of your debts. While in most cases all of your debts will be discharged, some debts cannot be discharged. For example, you cannot discharge debts for certain taxes that are not old enough; child support; alimony; student loans (unless a hardship can be shown); court fines and criminal restitution; and personal injury caused by driving drunk or under the influence of drugs. Also, the discharge only applies to debts that arose before the date you filed. Also, if the Judge finds that your debts were incurred by fraud or some other wrongdoing, that debt may not be discharged. The Court can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a Court order. You can only receive a chapter 7 discharge once every six years. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement or any other kind of document to do this. Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but unless an agreement can be worked out, the creditor can still recover the property.

Chapter 13

Repayment of All or Part of the Debts of an Individual. Chapter 13 is designed for individuals with regular income who are temporarily unable to pay their debts but would like to pay them in installments over a period of time. Under Chapter 13, unlike Chapter 7, you may keep all your property, both exempt and non-exempt, as long as you continue to make payments under the plan. Most types of debts are dischargeable in Chapter 13 upon completion of the plan, including some which are not dischargeable in Chapter 7. Chapter 13 is appropriate in cases where you are delinquent on your house, car, furniture, etc. payments but still want to keep the property. You must have some source of regular income and you must agree to pay part of your income to through a plan to your creditors. The period allowed by the court to repay debts can be up to five years. The Court must approve your repayment plan and your budget. A trustee is appointed to oversee the plan and will collect the payments from you usually through payroll deductions, pay your creditors, and make sure you live up to the terms of your repayment plan. You are only eligible for Chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code.

Click here to download the entire Bankruptcy Information form in PDF format