When an individual files for bankruptcy, they will usually file for two types of bankruptcy: Chapter 7 or Chapter 13:
- Chapter 7 Bankruptcy – The bankruptcy trustee appointed to administer your case will sell any nonexempt property and distribute the proceeds to creditors.
- Chapter 13 Bankruptcy – You can keep everything you own. You’ll pay creditors the value of the nonexempt property, your disposable income, or your nondischargeable debt (support obligations, most taxes, and the like), whichever is more, through a repayment plan.
For people who cannot pay their debts, bankruptcy is a saving grace, but it is not to be taken lightly. There are drawbacks to declaring bankruptcy, and it should only be used when absolutely necessary.