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Bankruptcy Basics
Most people think of bankruptcy as a process in which you go to court and get your debts erased. It is not that simple.

In fact, there are two types of bankruptcy: the familiar liquidation bankruptcy, where your debts are wiped out (Chapter 7 bankruptcy) and “reorganization” bankruptcy, where you partially or fully repay your debts. The reorganization bankruptcy for individuals is called Chapter 13 bankruptcy. (There are two other kinds of reorganization bankruptcy: Chapter 11, for businesses and for individuals with debts over $1 million, and Chapter 12, for family farmers.)

Filing for bankruptcy puts into effect something called the “automatic stay”, which immediately stops your creditors from trying to collect. Creditors cannot garnish your wages, empty your bank account or go after your car or house.

Until your bankruptcy case ends, your financial problems are in the hands of the bankruptcy court. The court exercises its control through a court-appointed person called a “bankruptcy trustee.” The trustee’s primary duty is to see that your creditors are paid as much as possible.

Chapter 7 Bankruptcy – When It Might not Help
Filing for Chapter 7 bankruptcy is only one way to solve debt problems. In several situations, Chapter 7 bankruptcy may not be the right choice.

You previously received a bankruptcy discharge
You cannot file for Chapter 7 bankruptcy if you obtained a discharge of your debts under Chapter 7 or Chapter 13 in a case begun within the past six years.

A previous bankruptcy case was dismissed
You cannot file for Chapter 7 bankruptcy if a previous Chapter 7 or Chapter 13 case was dismissed within the past 180 days because you violated a court order or requested the dismissal after a creditor asked for relief from the automatic stay.

A friend or relative cosigned a loan
Anyone who cosigned a loan or otherwise took on a joint obligation with you can be held wholly responsible for the debt if you file for Chapter 7 bankruptcy.

Repayment through Chapter 13
A bankruptcy judge who decides you have enough assets or income to repay your debts can dismiss your Chapter 7 bankruptcy case or convert it to a Chapter 13 bankruptcy.