Each year more than 1,200,000 Americans file for protection under the federal bankruptcy laws, according to the American Bankruptcy Institute. Bankruptcy can relieve the honest but unfortunate debtor from the pressures of excessive debt by providing a fresh start. It allows you to discharge some of your debt or allows you time to get back on your feet without harassment by creditors. The bankruptcy laws also benefit creditors by providing a method for them to obtain at least partial payment of a debt in an orderly fashion.

There are two main types of bankruptcy available to individuals. In Chapter 7, your nonexempt assets may be sold to pay creditors while most of your debts are discharged. In Chapter 13 or Chapter 11, you prepare a reorganization plan to pay off creditors in full or in part. Once you file a bankruptcy petition, an automatic stay prevents creditors from starting or continuing most legal proceedings against you.

In Chapter 7 bankruptcy, your nonexempt property may be sold by an appointed trustee, who then makes partial payments to your creditors. You have the right to retain at least a partial interest in certain assets, such as your residence, car, clothing, household appliances and furnishings, life insurance, pensions and tools of your trade. In most cases, you may not have to give up any of your personal property.


Chapter 11 bankruptcy is generally used to reorganize a business, although individuals are also eligible. This type of bankruptcy allows a business to continue operating while repaying creditors through a court-approved plan.

If you have a regular income, Chapter 13 bankruptcy provides a method for repaying your debt over a period of time, according to a court-approved plan. The period of time allowed ranges from three to five years. Generally, only an individual with unsecured debts of less than $270,000 and secured debts of less than $800,000 is eligible.

To file Chapter 13, you must file the appropriate schedules and petitions with the bankruptcy court and pay the filing fee. You must also file a proposed plan of repayment with your original petition or within the next 15 days. A trustee will be appointed to supervise your performance, to make regular payments to your creditors and to provide the court and other parties with information about your finances.

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