What type of bankruptcy is best for me?
The answer to this question depends on what type of financial problem is putting pressure on you. The bankruptcy code provides for two types of bankruptcy for consumers: liquidation and reorganization.
These types of bankruptcies are divided into chapters. Liquidation bankruptcies are handled under chapter 7 of the bankruptcy code. Most consumer reorganization bankruptcies are filed under chapter 11 or chapter 13 of the bankruptcy code.
The best type of bankruptcy for you depends on your situation:
Chapter 7 Bankruptcy:
Chapter 7 bankruptcy is the most common chapter of bankruptcy and it is what most people think of when they think of bankruptcy. When a borrower files chapter 7 the court will discharge their debts in exchange for the borrower allowing their non-exempt assets to be liquidated to pay their creditors.
While this sounds scary, most borrowers have a "no asset" case where the borrower's exemptions exceed the value of their assets so they do not lose anything. However, even if people have non-exempt assets they are usually able to keep them by working out a "buy back" agreement with their chapter 7 trustee.
Chapter 13 Bankruptcy:
Chapter 13 bankruptcy one of the reorganization bankruptcy chapters. Generally, it is a payment plan that is forced on the creditors if the plan is approved by the court. The plan will be approved by the court even if creditors object as long as it meets the requirements in the bankruptcy code.
The code gives chapter 13 debtors quite a bit of flexibility when drafting their plan. For example, a plan can use the bankruptcy to force the mortgage or homeowners association to allow an arrearage to be paid back over the life of the plan. On the other hand, the plan can surrender the property back to the creditors. A plan can also cram down secured debt to the value of the collateral and reduce the interest rate on secured debt.