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For individuals there are two types of bankruptcy including Chapter 7 in which all of their debts are essentially eliminated and Chapter 13, in which their debts are paid off over a 5 year period of time, supervised by a trustee from your court.

Businesses can use a Chapter 11 bankruptcy during which they can reorganize their debt until it’s paid off or renegotiated in order to remain in business until their financial house is back in order.

A quick consultation with a bankruptcy attorney will help determine which of the types of bankruptcy the individual qualifies to file under. There are certain tests administered to determine if the individual qualifies to file Chapter 7 under the new bankruptcy laws.

Basically in the test they will calculate the individuals monthly income, if the individuals income is higher than the average in the state he or she resides in, the individual will definitely not be allowed to file under chapter 7 and he or she will then have to file under chapter 13.

With a chapter 7 bankruptcy all debts whether secured or unsecured can be eliminated. But sometimes the court will seize some assets to be sold off so that at least some of the individual’s debt can be satisfied.

So out of the two different types of bankruptcy an individual can file under, chapter 7 will reward the most financial relief.

The paying off of debt over time

If a person does not qualify for Chapter 7 bankruptcy, they might consider a Chapter 13 plan, which requires making monthly payment to a court trustee who then sends payments to all creditors listed as part of the repayment plan.

Of the two types of bankruptcy this helps a person meet their financial obligations while keeping creditors from taking collection actions against the debtor.

Not too long ago it was not uncommon for people to start out with a chapter 13 bankruptcy, but soon after find themselves incapable of meeting with the obligations and so were able to make the move into a chapter 7 bankruptcy instead.

However since the new bankruptcy laws came into circulation, the question of whether or not you can qualify for chapter 7 of 13 bankruptcy is decided by the courts means test.

So basically if an individual has the means as it were, the current income level, to be capable of paying off their debts, they will be restricted whether they like it or not to a chapter 13 bankruptcy.

Whether you file for chapter 7 or 13, any assets or initial payments will first go to creditors with priority access. Priority access will be granted to but not limited to, student loans, part income taxes and generally most other government obligations you may have.

Once all of your creditors with priority access have been dealt with the payments to unsecured creditors will start to take place.

It is really, really vital to remember that what ever you do, what ever bankruptcy you can file for, bankruptcy really must be your last option. Once you’ve filed bankruptcy there is no turning back and it will remain on your public records for as long as 10 years.