Chapter 7 Bankruptcy

• Chapter 7 bankruptcies involve the complete liquidation of all of your non-exempt assets to pay your creditors. Typical examples of exempt assets include automobiles, work-related equipment or tools, and other basic household items. You can only file a Chapter 7 bankruptcy once every eight years.
  
  

Chapter 13 Bankruptcy

• In a Chapter 13 bankruptcy, the bankruptcy court approves (sometimes creates) a repayment plan to permit debtors to use future income to pay off debts over a three- to five-year repayment period. You need to have a job or some other steady income to qualify for a Chapter 13 bankruptcy. The main advantage of a Chapter 13 filing is that you are not required to surrender any property or other real assets, and foreclosure and repossession actions are all halted and included in the repayment plan.
  
  

Bankruptcy Creditor Meetings

• Bankruptcy creditor meetings are where all of the creditors and the debtor (and/or legal representatives) sit down to finalize a deal. The terms of the repayment have usually been discussed and worked out before the meeting, but not always, and these meetings can be contentious. Sometimes creditors (especially mortgage-holders) will not accept compromises, believing they will gain more by refusing to accept the proposed repayment plan and forcing the debtor into Chapter 7. In a Chapter 13 proceeding the court cannot force a creditor to accept a repayment plan that alters the terms of a debt, but most creditors will negotiate (particularly non-secured debt holders) as they might get little to nothing in a Chapter 7 bankruptcy filing.
  
  

Bankruptcy and Home Ownership

• The laws surrounding bankruptcy and home ownership are quite complex and often allow the debtor to choose between filing under state or federal bankruptcy law. Some states offer a homestead exemption, where any equity in your house (up to a specified amount) is protected from repossession during bankruptcy. Reaffirmation, where the debtor affirms that he will continue paying the mortgage despite the bankruptcy, is a common procedure in Chapter 13 filings, and modifications in the terms of a mortgage are often worked out during these bankruptcy proceedings.