what is bankruptcy really about ... ?

Bankruptcy is a deal between the person or entity that needs relief (the debtor) and the Federal Government. The debtor gives up certain assets and information. In return the government steps in to protect them from creditors like no-one else could.

chapter 7:  liquidation

The purpose of chapter 7 bankruptcy is to wipe out debts and allow for a fresh start. The essence of chapter 7 is that you give up property. That property is then taken over by the trustee, whose responsibility is to sell it and distribute the proceeds to creditors. The vast majority of chapter 7 debtors are debt-free in about 90 days.

chapters 11 and 13:  reorganization

Chapters 11 and 13, also known as a Wage Earner Plans, are used by debtors that wish to pay their creditors back or who cannot file chapter 7 because they cannot do so under the means test imposed by the new Bankruptcy Law. Chapters 11 and 13 are also appropriate for debtors who would lose their house, car, etc. by filing chapter 7. These cases are heard by the same Judges who hear chapter 7's, but the trustees are different.

Resources