Understanding the types of personal bankruptcy

Generally, there are two personal bankruptcy chapters available to consumers.

Chapter 7

  • Liquidation of assets
  • Established for debtors that do not have the ability to pay their existing debts
  • Provides for a discharge (i.e., elimination) of existing debts

Chapter 13

  • Established for consumers with regular income who are temporarily unable to pay their debts
  • Provides for a repayment plan that will repay debts in no more than five years

According to the Federal Trade Commission (FTC), both Chapter 7 and Chapter 13 bankruptcy may help stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts vary. Note that personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations.

Consumers filing for personal bankruptcy protection can file on their own; however, bankruptcy laws can be quite complicated. A trusted attorney may prove to be helpful. To find a bankruptcy attorney, you can ask someone you trust to recommend a good attorney or contact the Lawyer Referral Service sponsored by your State Bar Association. Make sure that your lawyer specializes in bankruptcy. Potential retained attorneys should be asked specific questions about their qualifications and fee structure. Finally, you should set a time to meet with the lawyer to determine if you are comfortable working with the person. Filing bankruptcy can be an emotional event so it is imperative that you have a good relationship with your attorney. 

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.