Consumer bankruptcies come in two flavors and you must initially choose which way you're going to go. It will be either a liquidation bankruptcy or a reorganization.
Liquidation bankruptcies offer immediate permanent relief from most unsecured lenders but you're limited as to how much property you can retain. Wage and bank account garnishments stop immediately upon filing. Chapter 7 is always a liquidation bankruptcy. Infrequently, chapter 12 and 13 are liquidation bankruptcies. This article addresses liquidation in chapter 7.
The deal in chapter 7 is that you keep exempt property but the stuff you can't keep because you've run out of exemptions is considered non-exempt and you should expect to lose it the Chapter 7 bankruptcy estate. A trustee then sells (liquidates) the non-exempt property and distributes the proceeds to your creditors in exchange for them going away forever (subject to certain limits for some taxes and student loans and other special debt) while you go on with your life.
A reorganization bankruptcy allows you to keep property you would have lost in a liquidation bankruptcy, and more. The reorganization concept is mimicked by private debt management plans (DMPs). Bankruptcy is superior to DMPs because creditors need not participate in your DMP, because of large fees, and historically because of poor regulation. In contrast to the DMP you are in control, forcing affordable and typically excellent terms on creditors who otherwise ignore DMPs. Chapter 13 is a typical reorganization bankruptcy. It requires ongoing payments for a period of years. Chapter 13 is has special benefits that may allow you to cure defaults, stop foreclosures, strip off second mortgages, force refinancing on fair terms for certain vehicles, and more.
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