The primary purpose of bankruptcy laws is to relieve honest individuals and commercial enterprise debtors from their indebtedness and to provide them with a “fresh start.” There are two basic types of bankruptcy proceedings; Liquidation under Chapter 7 and repayment of the debts, over a period of time using future earnings under Chapter 13.
Chapter 7, informally called “straight bankruptcy,” is a liquidation bankruptcy proceeding. At the end of the proceeding the debtor receives a discharge of indebtedness for all dischargeable debts releasing him or her from personal liability for those debts. Generally, the debtor is able to keep his/her home and automobile in addition to other exempt property. Chapter 13 provides debt relief for individuals (consumers) by making payments to creditors (through the Trustee) based on the debtor’s anticipated income over the life of the Chapter 13 Plan, usually three to five years. Chapter 13 is particularly useful for folks who have a home on the verge of foreclosure and really want to keep their home, yet still file bankruptcy.