Types Of Bankruptcy Relief

In general, there are two types of bankruptcy relief available to individuals. The first, and usually less complex procedurally, is liquidation. Liquidation is typically carried out under Chapter 7 of the Bankruptcy Code.  The second type of bankruptcy relief is reorganization, governed by Chapters 13 of the Bankruptcy Code.

Chapter 7

In a Chapter 7 liquidation, as in other bankruptcy proceedings, all property and assets in which the debtor had an interest on the date of bankruptcy becomes part of the bankruptcy estate, to be sold or otherwise disposed of by the Chapter 7 trustee.

A debtor who is an individual is entitled to exempt certain property from the estate based on state law. The exempt property is normally not seized by the trustee. The estate is administered by the trustee who will sell, or otherwise reduce to cash, all nonexempt property of the estate, including claims and causes of action held by the debtor. Creditors who file proofs of claim receive the proceeds of the liquidation in accordance with the priorities established by the Bankruptcy Code.

An individual debtor will then be released (discharged) from personal liability on all the debts he has discharged , in consideration of his or her surrender of all nonexempt property for liquidation, assuming that he or she has not committed fraud or other misconduct.  The discharge order operates as a permanent injunction to prohibit creditors from attempting to collect on the discharged debts.

Chapter 13

The simplest form of reorganization is available under Chapter 13 of the Bankruptcy Code. Chapter 13, titled "Adjustment of Debts of an Individual With Regular Income," is available only to individuals with less than $336,900 of noncontingent, liquidated, unsecured debts, and less than $1,010,650 of noncontingent, liquidated, secured debts.