*Chapter 11 is known as "reorganization" and is
common among businesses.
*Chapter 12 is reserved for family farmers.
*Chapter 13 is known as "debt adjustment."
Although there are four types, the most common ones are Chapter 7 and Chapter 13 which will be discussed in this paper. In a bankruptcy case under Chapter 7, one files a petition asking the court to discharge their debt. The basic idea in Chapter 7 bankruptcy is to wipe out one's debt. It does not involve the filing of a plan of repayment. There is no property which is non exempt that one can sell to pay creditors; all unsecured creditors are paid nothing. On October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 make it difficult for one to file Chapter 7 Bankruptcy. One may not file bankruptcy under Chapter 7 if they are capable of paying their creditors based on new criteria known as the means test. The means test compares one's excess monthly income and their amount of debt to determine how much they can pay their creditors. After the application of the means test, only those deemed incapable of paying their debts will be allowed to proceed with Chapter 7 bankruptcy. Those deemed capable of paying will either have to be dismissed or converted to a Chapter 13 bankruptcy.
Chapter 13 is for one with a regular income who desires to pay their debts over a period of time under the supervision of the court. Debtors are permitted to repay creditors in installments generally over a five-year period; in which, creditors are prohibited from starting or continuing collection efforts. Bankruptcy makes it possible for one to eliminate the legal obligation to pay most or all of their debts. It also stops foreclosure on homes which allows one an opportunity to catch up on missed payments. It can also prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed. Bankruptcy can stop wage garnishment and debt collection harassment. Bankruptcy cannot cure every financial problem. It will not eliminate certain rights of "secured" creditors. One cannot keep collateral unless they continue to pay the debt. Also, student loans, child support, alimony, court restitution orders, and criminal finals are not discharged. It does not protect consigners on debts. When someone has cosigned a loan and the other party has discharge the loan in bankruptcy, the cosigner may still have to pay all or part of the loan.
For this paper, I interviewed one person who filed Chapter 7 and two people who filed Chapter 13. The young lady who filed Chapter 7 stated that bankruptcy was her only way out to financial relief. She said that she is now debt free and she has a job paying her $60,000 a year;...