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All About Bankruptcy, Part 2
This post is the second in a three post series on bankruptcy. If you haven’t already read part 1, I recommend you do before continuing,
Bankruptcies fall under two general categories – liquidations and reorganizations. In a liquidation, the debtor’s assets or property are sold off in order to repay debt. In a reorganization, the debtor gets to keep their property, but must adhere to a plan and schedule of debt repayment.
Chapter 7 and chapter 13 bankruptcy
When an individual or business files for bankruptcy, they do so under a particular chapter of the bankruptcy code. There are several chapters, but the two used by the majority of individuals and businesses are chapter 7 and chapter 13.
For more information on the bankruptcy chapters, check out our page.
What types of debt can and can’t be discharged in a bankruptcy?
The benefit of bankruptcy is that it allows the debtor to discharge many types of debt. These include:
- Credit card debt – this is a big one for many people
- Medical bills – a very common cause of financial distress, especially after an accident or unexpected illness
- Lawsuit judgments against you – except in certain cases involving DWI
- Debts governed by current leases and contracts – in the case of business bankruptcies, the court may require a partial repayment of contract and lease debts.
- Personal loans – including payday loans
There are also a few more types of debt that can be discharged in a chapter 13 filing, but not in a chapter 7 filing.
Check back soon for All About Bankruptcy, Part 3