When a consumer files for personal bankruptcy, they are declaring their inability to pay their creditors. The most common types of personal bankruptcy for individuals are Chapter 7 and Chapter 13.

Chapter 7 bankruptcy involves paying off unsecured debts by surrendering all non-exempt assets to a bankruptcy trustee who liquidates the property and distributes proceeds to creditors. Chapter 13 bankruptcy helps consumers devise a payment plan to repay their debts. Consumers give a portion of their income to a bankruptcy trustee who gives payments to creditors.

Advantages:

• Creditors must stop all collection actions immediately upon filing, including foreclosures and repossessions.

Disadvantages:

• Personal bankruptcy will stay on an individual’s credit report for 10 years and can make it difficult to obtain credit, life insurance and sometimes even a job.
• Many consumers do not qualify for bankruptcy.