Neil Robertson

Bankruptcy Types - Which Should You Choose?

What do all the bankruptcy "chapters" mean and what bankruptcy type should you choose?

If you are considering bankruptcy in the USA you might wonder what sort of bankruptcy is most suitable for you, and what the different bankruptcy types mean.  There are many different types of bankruptcy, but for people (not businesses) there are really only two types of bankruptcies that you need to consider.  These different types are named after the chapters in the original bankruptcy law.

Bankruptcy Types - Chapter 7

This is full bankruptcy for the most serious debt situations where the debtor has no or little income. Recent legislation restricted access to this form of bankruptcy as it was felt that too many people were taking advantage of it to avoid their debts.  Some of the new requirements include attending credit counseling and the need for additional legal advice.  This type of bankruptcy stays on your credit file for 10 years and usually you will not be able to get a mortgage for 2 years.

Bankruptcy Types - Chapter 13

This bankruptcy type is for people that have a serious debt problem but have earnings and can afford to pay something towards paying off their debt.  In this case the debtor will pay an agreed amount into their bankruptcy over a period of years.  At the end of this period all of their debts will be written off.  This form of bankruptcy stays on your credit file for 7 years. If you are a UK rather than a US resident, this type of bankruptcy is similar to an individual voluntary arrangement. 

Common Features

Mortgages are not included in a bankruptcy and whether the debtor gets to keep their home or not will depend on state-by-state regulations regarding exemption of the family home from the bankruptcy estate,

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