For individuals, there are two basic types of bankruptcies : chapter 7 and chapter 13.
An individual may file for bankruptcy under Chapter 7, which is sometimes called "fresh start" or a "liquidation" bankruptcy. In a Chapter 7 bankruptcy, an individual may keep certain kinds of property (called "exempt" property), and his or her remaining property will be sold to pay off his or her debts. When an individual is discharged from Chapter 7 bankruptcy, most of his or her preexisting debts will be discharged (i.e., will disappear).
Most individual bankruptcies are chapter 7 of the Bankruptcy Code. The process is relatively fast: cases are typically opened and closed in four to six months. LegalZoom offers affordable flat-fee pricing for chapter 7 bankruptcy filings.
People choose to file under chapter 7 for many different reasons. They may choose to do so because they have large payments that they cannot pay down like expensive hospital bills. Others may file during long periods of unemployment when they simply cannot pay their bills.
Filing for bankruptcy under Chapter 13 is different than doing so under chapter 7. Chapter 13 (sometimes called a "wage earner plan" allows an individual to pay his or her debts over an extended period using a court-approved, supervised, and enforced payment plan. Not all creditors are paid in full, and unpaid amounts will be discharged (with some exceptions). Chapter 13 bankruptcy filers help create their own payment plans, which give them three to five years to pay personal debt from their disposable incomes (i.e., whatever is left after necessary expenses, like food and shelter, have been paid). In a chapter 13 bankruptcy, individuals are often allowed to keep their property.
A person's eligibility for Chapter 7 or Chapter 13 is determined by his or her income, living expenses, and debts. LegalZoom's network of attorneys can help you determine the type of bankruptcy that will best suits your needs.