Bankruptcy is a process built into both the Federal and State laws that allows debtors to seek and obtain relief from debt. This is put into effect by way of a court order “discharging” or eliminating some or all debt. Dischargeable debt includes generally all unsecured debts (unless obtained through fraud), such as credit cards, medical bills, judgments from civil or collection lawsuits, outstanding balances from repossessions or foreclosures, personal loans, etc.

A bankruptcy can be filed by an individual, by a married couple jointly or individually, or by a business. In either case, only the person or business filing the bankruptcy can receive the discharge of debt. Thus, if both a husband and wife are responsible for specific debt, and only one spouse files for bankruptcy, only the filing spouse can receive a discharge and the non-filing spouse may still be liable for payment of the debt. This works in reverse as well. If only one spouse has incurred debt, only that spouse need file a bankruptcy, allowing the other spouse to avoid a bankruptcy on his or her credit history.

When filing a bankruptcy, the debtor is responsible for disclosing all income, assets and liabilities. However, this does not mean such assets will be surrendered or taken away from the debtor. A debtor has options depending on what assets he or she has. For example, debtors can generally keep their home, even if there is equity in the home. Debtors can also keep clothing, furniture, jewelry, vehicles and more, up to certain amounts.

The process and outcome depends on the type of bankruptcy filed. The most common types of bankruptcy and those that most consumers file are either a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy. Both allow you to eliminate your debt; however, a Chapter 7 generally allows you to do so without making any payments to creditors, while a Chapter 13 requires you to work out a payment plan wherein you make monthly payments for a specific amount of time and only after doing so can you eliminate any remaining debt. While a Chapter 7 is less complicated, a Chapter 13 does have additional benefits that are not available in a Chapter 7 and which may be more valuable depending on your situation.

A Chapter 11 Bankruptcy, which is extremely complicated, extensive, and expensive, is aimed at providing business owners with a debt reorganization plan and is rarely used by the general population. Finally, although there is technically no such thing as a Chapter 20 Bankruptcy, it is referred to in this way because it combines a Chapter 7 and Chapter 13 bankruptcy by filing first a Chapter 7 and then a Chapter 13 bankruptcy. There are specific reasons why this method would be used, and it only provides one discharge of debt, not a separate discharge in each case.