Bankruptcy - FAQs
What is Bankruptcy?
Bankruptcy is a legal procedure that allows people and businesses who get into financial trouble the opportunity to either work out a plan to pay off their debt or discharge (eliminate) most of their bills. There are several chapters of bankruptcy that a person or business can file under.
What is Chapter 7 bankruptcy?
Chapter 7 is known as straight bankruptcy and involves selling the debtor's non-exempt property and distributing the proceeds to creditors. Click on Chapter 7 at the top of the page for more information. See below for information on what property is exempt.
What is Chapter 11 bankruptcy?
Chapter 11 bankruptcy is usually only used by corporations because it is a very expensive and complex way of filing bankruptcy. Chapter 11 is usually only favorable for individuals with a very high net worth or with a very large amount of debt.
What is Chapter 12 bankruptcy?
Chapter 12 bankruptcy is very similar to Chapter 13 bankruptcy, but is only available to family farmers and fishermen.
What is Chapter 13 bankruptcy?
Chapter 13 is only available to individuals with a reliable source of income. Under Chapter 13 bankruptcy, the debtor will propose a plan to payback some of the debtor's creditors from the debtor's income over a time period of 3 or 5 years. Click on Chapter 13 at the top of the page for more information.
What is Exempt Property?
Exempt property is defined by state law, but generally includes:
- Equity in a home, up to a certain amount
- Vehicles, up to a certain amount
- Household goods
- Tools necessary for the debtor to continue working
Can bankruptcy stop a foreclosure sale of my house?
Filing bankruptcy will stop a foreclosure sale. If you receive a notice of foreclosure you will either have to negotiate with the lender to reinstate the loan, pay the balance of the loan, or file for bankruptcy to stop the foreclosure. Contact HUD for other options. After filing Chapter 13 bankruptcy, you will usually be able to resume making your normal mortgage payments while repaying any amount that you are behind over time through the Chapter 13 "plan".
Do I have to file bankruptcy on all of my debts?
You must include all of your debts when you file bankruptcy, but you may re-affirm a debt if you wish to continue paying it.
What effect will filing bankruptcy have on my credit?
Most individuals that file bankruptcy already have very bad credit and are very unlikely to get a loan. If you have a bad credit history, filing bankruptcy can actually improve your credit.This is because all previous debts are wiped out and you will not be able to file bankruptcy again for several years. Filing bankruptcy can be a great way to start rebuilding your credit, but can remain on your credit report from 7 to 10 years after the date that you file.