People in the United States who are struggling with debt can choose from Chapter 7, Chapter 11, or Chapter 13 federal bankruptcy protection. When you file for any type of consumer bankruptcy, you are automatically protected from adverse creditor actions such as lawsuits and wage garnishments. This automatic stay allows your local bankruptcy court officials the time to determine whether you can indeed qualify for permanent relief of court-approved debts through bankruptcy.
Chapter 7 is a “liquidation” bankruptcy for which only people earning a median income for their state or below can usually qualify, according to the book “How to File for Chapter 7 Bankruptcy.” Generally, a debtor who makes more than their state’s median income might be compelled to repay at least part of his obligations through Chapter 13. However, if you can prove you don’t have much disposable income through a federal means test form, you may still qualify for Chapter 7. In this type of bankruptcy, a court trustee sells off most of your assets including home equity. In exchange, you receive permanent forgiveness of debts such as credit card bills, medical bills and personal loans. You cannot include most back taxes, most federally-issued student loans, child support, alimony, court fines or debts arising from criminal activity. Also, keep in mind that Chapter 7 filings are reported on your credit for 10 years from the date you declare bankruptcy, according to Experian. This could harm your ability to get new credit during that time.
Chapter 13 allows debtors a number of bankruptcy protections, but they must repay at least some of their debts under court supervision. One advantage is that negative credit reporting for Chapter 13 only occurs for seven years from the date of filing, according to Experian. Also, debtors who pursue Chapter 13 can often keep their homes and most other assets including savings accounts. Keep in mind that retirement accounts can never be taken in any type of personal bankruptcy.
Chapter 11 is usually more suited to people who are self-employed. This “reorganization” bankruptcy allows people to restructure their debts without losing personal or business assets. However, this type of bankruptcy costs $1,039 in court fees as of 2010. Chapter 7 court fees are $299 and Chapter 13 court costs are $274, according to the United States Bankruptcy Courts website.