The FTC defines Bankruptcy as: Personal bankruptcy generally is considered the debt management option
a last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. Still, it is a legal procedure that offers a fresh start for people who can't satisfy their debts. People who follow the bankruptcy rules receive a discharge — a court order that says they don't have to repay certain debts.
There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each
must be filed in federal bankruptcy court. The filing fees run about $185 for Chapter
13 and $200 for Chapter 7. Attorney fees are additional and can vary.
Chapter 13 allows people with a steady income to keep property, like a mortgaged
house or a car, that they otherwise might lose. In Chapter 13, the court approves
a repayment plan that allows you to use your future income to pay off a default
during a three-to-five-year period, rather than surrender any property. After you
have made all the payments under the plan, you receive a discharge of your debts.
Known as straight bankruptcy, Chapter 7 involves liquidation of all assets that
are not exempt. Exempt property may include automobiles, work-related tools, and
basic household furnishings. Some of your property may be sold by a court-appointed
official — a trustee — or turned over to your creditors. You can receive a discharge
of your debts through Chapter 7 only once every six years.
Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions,
garnishments, utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts
vary. Note that personal bankruptcy usually does not erase child support, alimony,
fines, taxes, and some student loan obligations. And unless you have an acceptable
plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow
you to keep property when your creditor has an unpaid mortgage or lien on it.
Source: Facts for Consumers