The most common reasons for filing a Chapter 7 bankruptcy are: large amounts of credit card or loan debt, divorces with extensive credit, extended unemployment, overwhelming healthcare and medical expenses, extended periods of disability and unexpected expenses and business losses.

Legally speaking, according to the National Association of Bankruptcy Trustees, a Chapter 7 bankruptcy is:

A liquidation legal proceeding.  Upon filing of the bankruptcy petition, the debtor turns over all non-exempt property to the court-appointed bankruptcy trustee, who then converts the property to cash to make a distribution to creditors.  Generally, most assets held by the average debtor are considered to be exempt.  In those cases, the trustee files a report of no distribution with the Court to indicate there will be no payment to the creditors.  The debtor is required to attend a Section 341 hearing which is commonly called the first meeting of the creditors.  The bankruptcy trustee presides at this hearing and the debtor is required to answer specific questions outlined in the U.S. Bankruptcy Code.  Creditors of the debtor are allowed the opportunity to ask questions of the debtor regarding the statements and schedules filed by the debtor with the Court.  Usually after 60 days from the date of the 341 hearing the debtor will receive a discharge which effectively “wipes out” all dischargeable debts.

In order to file a bankruptcy, the debtor must reside in the location of filing within the greater part of 6 months (91 days).  The debtor maybe an individual, married couple, corporation, partnership or trust.  The debtor may not have been granted a Chapter 7 discharge within the previous 8 years.  The debtor must not have had a previous bankruptcy dismissed for cause within the last 180 days.

The most common reasons for filing a Chapter 13 bankruptcy are: falling behind on mortgage payments, large amounts of credit card or consumer loan debt, tax debt, divorces with extensive credit, extended unemployment, overwhelming healthcare and medical expenses, extended periods of disability and unexpected expenses and business losses.

Legally speaking, according to the United States Justice Department:

Chapter 13 is frequently referred to as the “wage earner” chapter. Under Chapter 13, mortgage arrears can be “caught up” over time to avoid home foreclosure; non-dischargeable tax debt can be cured and tax garnishment avoided; assets with substantial equity can be retained while paying non-exempt equity to creditors; and in some cases, you can possibly “strip off” mortgage and judgment liens on your home (if the value of your home doesn’t) through a repayment plan. You can usually keep your property, but you must earn wages or have some other source of regular income to be a debtor under this chapter.

The Court must approve your repayment plan and budget. A Chapter 13 trustee is appointed, and will collect the payments from you. The trustee, in turn, will pay your creditors and monitor your compliance with the terms of your repayment plan. After completion of all payments under your plan, you will receive your discharge.