If you are an individual in the US you can apply for two different types of bankruptcy. The first is chapter 7 which can totally eliminate all of the individual’s debts. The second is chapter 13; with this option the individual’s debts will be paid off during the following five years.

Businesses can use a Chapter 11 bankruptcy during which they can reorganize their debt until it’s paid off or renegotiated in order to remain in business until their financial house is back in order.

Following the new bankruptcy laws there are now tests in place to determine whether or not an individual can qualify the chapter 7. You will need to consult with a bankruptcy attorney to find out which bankruptcy you will be able to file under.

Basically in the test they will calculate the individuals monthly income, if the individuals income is higher than the average in the state he or she resides in, the individual will definitely not be allowed to file under chapter 7 and he or she will then have to file under chapter 13.

With a chapter 7 bankruptcy all debts whether secured or unsecured can be eliminated. But sometimes the court will seize some assets to be sold off so that at least some of the individual’s debt can be satisfied.

Clearly out of chapter 13 and chapter 7 bankruptcies, it is chapter 7 which will provide the most financial relief.

Paying Off Debt Over Time

If the individual cannot qualify for a chapter 7 bankruptcy, they will still be able to file for chapter 13. In doing so they will be obligated to make payments on a monthly basis to a court trustee, who will in turn send out the payments to the individuals different creditors.

Out of the two individuals types of bankruptcy, chapter 13 and chapter 7, chapter 13 will help the individual to make good all their financial obligations and at the same time hold back creditors from attempting to take collection actions against the debtor in question.

Many people often used to start with I chapter 13 bankruptcy, but then found themselves financially incapable of meeting their obligations and so managed to move into a chapter 7 bankruptcy.

However since the new bankruptcy laws came into circulation, the question of whether or not you can qualify for chapter 7 of 13 bankruptcy is decided by the courts means test.

If the person has the means, current income level, to pay off their debts, they are restricted to filing for Chapter 13 whether they like it or not.

Whether you file for chapter 7 or 13, any assets or initial payments will first go to creditors with priority access. Priority access will be granted to but not limited to, student loans, part income taxes and generally most other government obligations you may have.

When all priority access creditors have had their debts resolved, the paying off of debts process will then move on to those creditors that were unsecured.

When you’ve filed bankruptcy the fact that you have done so can stay on your public record for as long as 10 years into the future! So you really must carefully consider all your options before taking on a bankruptcy, bankruptcy should always be your last option.