Types Of Bankruptcy

There are different types of bankruptcy protection designated by the US. Bankruptcy Code under which a debtor may file. Each type of bankruptcy is named for the chapter it can be found under in the Bankruptcy Code. When a person says that they are filing for Chapter 7, they are really saying that they are filing for bankruptcy under the laws of Chapter 7 of Title 11 of the United States Code.

The most common types of bankruptcy:

Chapter 7: This involves the liquidation of only non-exempt assets in control of the debtor. If any assets are liquidated and money raised, the funds are used to pay creditors on a pro-rata basis based on their “priority” level in the bankruptcy system. A person can walk away from this type of bankruptcy with the items listed as “exempt” intact. The debtor is also authorized to keep any income earned after the bankruptcy was filed. This means that money earned after a person files for bankruptcy may not be used to pay the debts listed in the terms of the bankruptcy. Restrictions apply to individual debtors filing for chapter 7 protection. An individual must pass a “means test” before being approved to file for Chapter 7. Those who fail to meet the requirements may file under another type of bankruptcy. Chapter 7 is by far the most common, and typically, the most desirable type of bankruptcy for the debtor because it involves no repayment plan.