Bankruptcy laws in the US are set by the federal government and administered in the Bankruptcy law courts. The purpose of the laws is to reach an equitable agreement between the person filing for bankruptcy and those that are owed money. The laws try to get as much of the money that is owed to the creditor without making it impossible for the debtor. It is thought that nearly one million people will go bankrupt this year in the United States. They will consider filing for bankruptcy. This article will cover the ways they can go if they decide to file for personal bankruptcy.

Filing under Ch7

This is the most common way that people file for bankruptcy. Chapter 7 involves the bankruptcy court liquidating your assets and paying back your creditors. You are responsible for drawing up your list of assets. In most cases this does not include items such as your home or car. A trustee that is appointed by the court will be responsible for selling your assets and paying off your creditors. Chapter 7 costs around $300 for an administration fee. It can only be filed every seven years by one individual.

Filing Chapter 13

Unlike chapter 7, chapter 13 bankruptcy does not cancel out your debt but it does allow you to keep all your assets. chapter 13 is a way to set up a payment plan and an agreement between debtor and creditors about how the debt will be paid off. This agreement is reached in the bankruptcy law courts. A trustee is assigned to the debtor by the courts. The trustee is responsible for drawing up the payment plan and ensuring that it is followed through. The debtor will give money to the trustee each month that will then be apportioned to the various creditors. The debt is only canceled out when all the outstanding debts have been paid but the aim of chapter 13 bankruptcy is to structure the payment plan so that the debtor can meet the conditions of the creditors without harassment.

Although both these forms of personal bankruptcy allows the debtor to discharge his/her debts there are some criteria that must be considered before going for each one. In the case of chapter 13, you cannot have a debt that exceeds two hundred fifty thousand dollars. This debt must be unsecured and any other debts that are secured should not be more than seven hundred and fifty thousand dollars. In chapter 7, personal assets are only exempt from liquidation in the following cases. Your home is exempt if you owe more than 80% of the value as a mortgage. Your car is exempt if it is worth less than $2,000.

Thus it is important to know what you are getting yourself into before going for one or the other. You should know all the criteria for each chapter and the ramifications should you decide on one. People are often advised to use a bankruptcy lawyer in this situation because they understand the laws and can give you good advice on which chapter best suits your situation best.