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What is Bankruptcy ?

A legal proceeding that relieves you of the responsibility of paying your debts or provides you with protection while attempting to repay your debts. There are two types of bankruptcies -- liquidation, in which your debts are wiped out (discharged) and reorganization.

Author: Kiranseo

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For both consumers and business, liquidation bankruptcy is called Chapter 7. For consumers, reorganization bankruptcy is called Chapter 13. Reorganization bankruptcy for consumers with an extraordinary amount of debt and for businesses is called Chapter 11. Reorganization bankruptcy for family farmers is called Chapter 12.

Chapter 7 - The most familiar type of, bankruptcy in which many or all of your debts are wiped out completely in exchange for giving up your nonexempt property. Chapter 7 bankruptcy takes from three to six months, costs $130 in filing fees and $45 in administrative fees, and commonly requires only one trip to the courthouse.

Chapter 13- The reorganization bankruptcy for consumers, in which you partially or fully repay your debts. In Chapter 13 bankruptcy, you keep your property and use your income to pay all or a portion of the debts over three to five years. The minimum amount you must pay is roughly equal to the value of your nonexempt property. In addition, you must pledge your disposable net income -- after subtracting reasonable expenses -- for the period during which you are making payments. At the end of the three-to five-year period, the balance of what you owe on most debts is erased.

Nonexempt property- The property you risk losing to your creditors when you file a Chapter 7 bankruptcy or when a creditor sues you and wins a judgment. Nonexempt property typically includes valuable clothing (furs) and electronic equipment, an expensive car that's been paid off and most of the equity in your house. Compare exempt property.

Dischargeable Debts- Debts that can be erased by going through bankruptcy. Most debts incurred prior to declaring bankruptcy are dischargeable, including back rent, credit card bills and medical bills.

Non Dischargeable Debt- Debts that cannot be erased by filing for bankruptcy. If you file for Chapter 7 bankruptcy, these debts will remain when your case is over. If you file for Chapter 13 bankruptcy, the non dischargeable debts will have to be paid in full during your plan or you will have a balance at the end of your case. Examples of non dischargeable debts include alimony and child support, most income tax debts, many student loans and debts for personal injury or death caused by drunk driving.

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What is Bankruptcy ?