Different chapters are suitable for different needs, but bankruptcy, simply, gives relief for debtors from the automatic stay on creditors' actions following the filing. The automatic stay ensures that all forms of harassment that debtors can be subject to, including letters, phone calls and other demands for funds, must stop. Ultimately, if all of the requirements from the court are fulfilled in the genuine and open manner indicative of full disclosure, several types of discharge are obtainable enabling the debtor to once again take up their lives or businesses once more.
People weighted down by consumer debt, such as credit card debt, can anticipate to have this debt wiped out as most credit card debt is unsecured. Debtors filing under chapter 7 are required to make their non-exempt assets available for liquidation to secured creditors. The debtor has to give payment or surrender the collateral. Unsecured creditors may not receive full payment or, indeed, any payment. The bankruptcy court designates a trustee who sets up a meeting with creditors and deals with the disposal of assets to creditors in line with their status. At the end of the process the debtor almost always receives a discharge; which means that the debtor is liberated from the cumbersome debt and able to start life afresh without anymore harassment by creditors.
Although chapter 7 is an approach predicated on relieving debt, there is also a provision for reaffirmation of a specific debt assuming the debtor can show ample income. In cases like this the debtor makes arrangements with a creditor to retain certain property. Chapter 7 does not mean the loss of all assets, so household assets and exempt property can usually be retained.
Other approaches to bankruptcy concentrate on reorganization rather than liquidation. These approaches require the development in the form of a repayment plan so the debtor can keep property or a business following reorganization, and sometimes consolidation, of debt. Chapter 13 is a reorganization approach that is ideal for individuals that have a steady income sufficient enough to keep their property and manage their mortgages given assistance and guidance.
Again the debtor receives relief on filing due to the hold on creditor activity, and co-debtors will also be protected from creditors. A repayment plan is made during debt counseling, although unsecured creditors may receive little or no repayments depending on the debtor's circumstances. After three to five years, the debtor will probably obtain a discharge of debts.
Family farmers and fisherman are offered chapter 12 a comparable method of debt management but one which encompasses increased debt burdens that include those related to operating these businesses.
Businesses have an option to file for chapter 11 with the possibility to stay in control and operate the business, eventually, eliminating the debt burden. This option is appropriate choice for larger businesses as it is a complex, lengthy and potentially expensive business. But it is the option that provides the mechanisms businesses need. It provides for flexibility in changing business environments where repayment plans can be modified.
Whether an individual or a business, discharge generally means that the debtor is free from debts in existence prior to filing the petition.