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Types of Bankruptcy

There are four types of bankruptcy available in the United States:  Chapter 7, Chapter 11, Chapter 12 and Chapter 13.

Chapter 7 is also known as "personal bankruptcy" and is the most common type.  Businesses can file under Chapter 7 as well.  It results in the total elimination of most of a person's unsecured debts and the prevention of further collection efforts by debtors. Chapter 7 involves liquidation of all assets that are not exempt in your state.  Property that is not exempt must be turned over to the bankruptcy trustee for liquidation.  Straight bankruptcy takes about four months to complete and a person may only file Chapter 7 bankruptcy once every six years.

Chapter 11 is for businesses that wish to reorganize but it is also available to individuals.  It is a complex type of bankruptcy that requires the assistance of an attorney.

Chapter 12 bankruptcy is for family farmers only.  It permits a farmer to repay his debts over time (much like a Chapter 13).

Chapter 13 or "reorganization" bankruptcy allows debtors to keep property which they might otherwise lose, such as a mortgaged house or car. Reorganizations may allow debtors to pay off or incur a default over a period of three to five years, rather than surrender property.  To file Chapter 13, your total debt must not exceed certain limitations.  You must submit a repayment plan to the court for approval.  Your repayments are supervised by a trustee appointed by the bankruptcy court.  If you cannot keep up with your payment plan, your bankruptcy can be converted to a Chapter 7.

Which type should you choose?  Well, assuming you aren't a farmer or business who wants to reorganize, you have either Chapter 7 or Chapter 13 to choose from.  Chapter 7 is almost always the preferred method, but it isn't available or recommended for everyone.  You can do-it-yourself with the help of a bankruptcy kit or book on the subject or you can hire an attorney if you think you need some help.

Chapter 13 almost always requires the assistance of an attorney and is more expensive.  You should really file Chapter 13 only if there is some reason that bars you from filing Chapter 7.