The purpose of bankruptcy is to enable individuals and
businesses to regain control of their finances by eliminating or
reorganizing their debts. The two types of bankruptcy most commonly used by consumers are Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy. In Chapter 7 bankruptcy, the bankruptcy trustee sells your nonexempt property to repay unsecured creditors. Because you get to keep your exempt property (each state and the federal bankruptcy code has a list of exempt property),most debtors lose little, if any, property in Chapter 7. In return, you can wipe out most types of unsecured debt. Some debts, however, like certain tax debts and back child support, can never be wiped out. And some, like student loans, are difficult to eliminate (but not impossible).
Chapter 13 Bankruptcy. In Chapter 13 bankruptcy, you keep all of your property and repay your unsecured debts (in full or part) through a Chapter 13 repayment plan, which lasts from three to five years. Because you can make up mortgage or car loan arrears in Chapter 13 (but not in Chapter 7), Chapter 13 is often a good choice for people who want to keep their homes or cars, but are behind in payments.