If you have been considering personal bankruptcy as the answer to your financial problems, you may be surprised to learn that there is more than one type of federal bankruptcy.
Most of them do not pertain to individuals but instead focus on corporations restructuring or special situations like farmers and fishermen.
When talking about personal bankruptcy, most people have in mind Chapter 7.
This is a process in which all of your debts are wiped away.
There are certain exceptions, of course, such as many tax problems, student loans, child support, and other lingering obligations.
In general, however, Chapter 7 discharges (or eliminates) your debt in exchange for liquidation of any nonexempt assets.
Liquidation means that you have to sell your assets in order to help pay for as much of your outstanding debt as possible.
The truth is that 95% of those filing Chapter 7 don't have many assets to speak of, and those assets they do possess are normally protected.
This is especially the case with their primary homestead or place of residence.
So what about Chapter 13? Chapter 13 is meant to be a restructuring process in which you pay off your debt (or at least a small portion of it) over the next three to five years.
It is supposed to come off of your credit report more quickly because you are paying for some of your debt, and many people believe that it is a big advantage to choose this route instead of a complete discharge.
However, that may not be true, depending on the circumstances.
Chapter 13 still affects your credit significantly, and you are left to pay some of the bill.
The advantage in Chapter 13 is that you get to keep all of your assets, so this can help you catch up on mortgage payments, for example.