Bankruptcy occurs when an individual or organization is unable to pay its creditors, and goes through legal channels to seek relief. While in the United Sates there are six different forms of bankruptcy, Chapter 7 and Chapter 13 are the ones used by most individuals.
In Chapter 13, the individual is allowed to retain ownership of their assets, such as their home and cars. However, they must pay a portion of their future income to creditors.
In Chapter 7, also known as straight bankruptcy, the individual is allowed to keep exempt property. This would be items such as clothes and household items. The non-exempt property is given to a bankruptcy trustee who sells it and uses the proceeds to pay off creditors.
BillShrink has posted an infographic that takes a look at personal bankruptcy in America.
Personal bankruptcy is an option when an individual has too much debt and cannot keep up with their financial obligations. The US Bankruptcy Code was amended in 2005 and added new requirements for those filing bankruptcy. As a result, many fewer Americans filed bankruptcy in 2006. However, the housing market bust, recession, credit crunch and other factors in personal finance are driving the rate of bankruptcy back up, despite the changes in the law.
You can choose to file bankruptcy under the chapter 7 or chapter 13. Chapter 7 bankruptcy is chosen when you wish to pay off all your debts. This may be followed by selling your home or car.In chapter 13 of bankruptcy you get a choice to repay over a long scheduled time for all your debts.