You can choose the kind of bankruptcy that best meets your needs (provided you meet certain qualifications):

Chapter 7- Also called liquidation, is the most common type of bankruptcy and completely eliminates your dischargeable debt forever. Individuals or businesses who are granted Chapter 7 bankruptcy discharge have proven to the court that they have no realistic way to repay their debt over the course of the next three to five years.  When Chapter 7 is awarded, the debtor is legally excused from having to repay any unsecured debts, and most debtors are able to keep all properties. Typically it takes about four months after the case is filed in the court, for a Chapter 7 bankruptcy case to be discharged.

Certain types of debts cannot be eliminated through Chapter 7 bankruptcy including student loans, child support, alimony,  and most taxes.

Chapter 13 – An individual or a business who does not qualify for Chapter 7 bankruptcy, may qualify to file  a Chapter 13 petition, which allows individuals to pay their debts in a plan over three to five years with zero interest.  Debtors may pay only a percentage of their debts and get a complete discharge at the end of the term of the plan, depending on the available disposable income after necessary living expenses, and the value of their non-exempt assets and personal property. Chapter 13 is also helpful to individuals who want to save their house or other real property from foreclosure sale. Chapter 13 allows individuals to resume their monthly mortgage payment and cure the default in the mortgage payment in a plan, through monthly payments spread over a three year period.

Chapter 12 – Like chapter 13, but it is only for family farmers and family fishermen.

Chapter 11 – This is used mostly by businesses. In chapter 11, you may continue to operate your business, but your creditors and the court must approve a plan to repay your debts. There is no trustee unless the judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property.

If you have already filed bankruptcy under chapter 7, you may be able to change your case to another chapter.

Your bankruptcy may be reported on your credit record for as long as ten years. It can affect your ability to receive credit in the future.

               Automatic Stay

The filing of a Chapter 7 bankruptcy petition  “automatically stays” most actions against the debtor or the debtor’s property. The automatic stay arises by operation of law and does not require legal action. As long as the stay is in effect, creditors cannot initiate or continue any collection action, lawsuits, wage garnishment, or even telephone calls demanding payments. Once the bankruptcy petition is filed with the court creditors receive notice of the filing from the clerk of the court.

One of the reasons people file bankruptcy is to get a “discharge.” A discharge is a court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for–

• most taxes;
• child support;
• alimony;
• most student loans;
• court fines and criminal restitution; and
• personal injury caused by driving drunk or under the influence of drugs.

The discharge only applies to debts that arose before the date you filed. Also, if the judge finds that you received money or property by fraud, that debt may not be discharged.

It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged. The judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a court order.

You can only receive a chapter 7 discharge once every eight years. Other rules may apply if you previously received a discharge in a chapter 13 case. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement (see below) or any other kind of document to do this.

Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property.

Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements–

• must be voluntary;
• must not place too heavy a burden on you or your family;
• must be in your best interest; and
• can be canceled anytime before the court issues your discharge or within 60 days after the agreement is filed with the court, whichever gives you the most time.

If you are an individual and you are not represented by an attorney, the court must hold a hearing to decide whether to approve the reaffirmation agreement. The agreement will not be legally binding until the court approves it.

If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you.