Facts on Bankruptcy

Bankruptcy is a legal process that is difficult for many people and businesses. However, in many cases it gives people a fresh start they desperately need. While there is some stigma associated with going through the process, in many cases it is worth the stigma and difficulty. Before considering the process, it is important to learn everything you can about bankruptcy

Three Types of Bankruptcy

Every bankruptcy is not alike, there are actually six specific types, but only three of them are commonly used.

• A chapter 7 bankruptcy occurs when someone gets a fresh start. In this case, all of the debt, with a couple of exceptions, disappears. The problem with this method is that people often cannot keep expensive cars or property.


• Chapter 13 is a debt reconfiguration. The debt is not forgiven, but is adjusted and there is a repayment plan put into place allowing the person to keep their property. Those with an income and own a home, but have gotten behind, may prefer this method. 


• Chapter 11 is for businesses, and it has a combination of discharge and reorganization.

Bankruptcy Laws

Because of the major impact of a bankruptcy, there are many laws in place. Until a few years ago, it was relatively easy to file for bankruptcy, but new laws help prevent the process from being taken advantage of by dishonest people. The first law is that a person or business can only go through bankruptcy every seven years. This keeps from taking advantage of the system regularly. Another important part of the code is those with higher incomes can no longer file Chapter 7 bankruptcy. By requiring those people to file Chapter 13, there is less debt fully discharged, protecting businesses.