Define Bankruptcy

Bankruptcy means someone is legally unable to pay their debts as agreed. The procedure of verifying someone truly is bankrupt can take up to 8 months in most cases, and those who have some assets will be required to pay back some or most of their debts over a 2- to 5-year time period. There are two major types of bankruptcy definitions that apply to consumers: Chapter 7 and Chapter 13.

Chapter 7 Definition

Chapter 7 bankruptcy means the debtor has few if any assets, lower than average income, and needs to have her debts forgiven to make a new start in her life.

Chapter 13 Definition

Chapter 13 cases are when the debtor has some assets, average or higher income, and needs to have some of his debts restructured so he can repay them and move forward with his life.

Assets

An asset for the purpose of bankruptcy could be savings accounts, home equity, stocks, certificates of deposit, or expensive jewelry and vehicles. Most personal goods and all retirement accounts are not seized during bankruptcy.

Debts

Debts not usually eligible to be forgiven through bankruptcy include child support, alimony, student loans, court fines, drunken driving lawsuits or taxes owed less than 3 years old. Most other debts may be included in a bankruptcy case.

Credit Reporting

A Chapter 7 case will be reflected on a person's credit report for 10 years, while a Chapter 13 repayment plan will be noted on credit reports for 7 years.

Resources

• United States Bankruptcy Courts