What Different Types of Bankruptcy Should I Consider?

There are five types of bankruptcy provided under the law:

· Chapter 7 is known as "straight" bankruptcy or liquidation. It requires a debtor to give up property that exceeds certain limits called "exemptions", so the property can be sold to pay creditors. Most people keep all their property.

· Chapter 13 is called "debt adjustment". It requires a debtor to file a plan to pay debts (or parts of debts) from current income.

· Chapter 11, is known as "reorganization", is used by businesses and a few individual debtors whose debts are very large.

· Chapter 12 is reserved for family farmers and commercial fishermen.

· Chapter 15 is reserved for Ancillary and Other Cross-Border Cases.

Most people filing bankruptcy will want to file under either Chapter 7 or Chapter 13. Either type of case may be filed individually or by a married couple filing jointly.

Chapter 7 (Straight Bankruptcy)

In a bankruptcy case under Chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a Chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for "exempt" property, which the law allows you to keep. In most cases, all of your property will be exempt. But property that is not exempt is sold, with the money distributed to creditors.

If you want to keep property like a home or a car and are behind on the payments on a mortgage or a car loan, a Chapter 7 probably will not be the right choice for you. That is because Chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.

Chapter 13 (Reorganization)

In a Chapter 13 case you file a "plan" showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a Chapter 13 case is that it will allow you to keep valuable property, especially your home and car-which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind.

You should consider filing Chapter 13 plan if you:

- own your home and are in danger of losing it because of money problems;
- are behind on debt payments, but can catch up if given some time;
- have valuable property which is not exempt, but you can afford to pay creditors from your income over time

You will need to have enough income in Chapter 13 to pay for your necessities and to keep up with the required payments as they come due.