The aim of bankruptcy is to provide a consumer with a fresh financial start. It should relieve them of overwhelming debt and let them start over. In principle, it is a good idea but between changing laws and social stigma, it is something almost all consumers would prefer to avoid.There are two types of bankruptcy that apply to consumers. Chapter 7 and Chapter 13. Both are designed to help eliminate debt, but they are quite different in how they work. Chapter 7 is also known as credit card bankruptcy, and it is largely a type of reorganization for finances. The consumer gets to keep all property but must make monthly payments over a three to five year period to repay all or at least part of the debts owed. There are many exceptions that vary from state to state, and in some cases property can be taken.Chapter 13 is more commonly known as a wage earner bankruptcy. In this case, the consumer must have steady income that can be used to repay a portion of debts. There are also restrictions on amounts of secured and unsecured loans. It is possible to avoid property foreclosures by making up missed payments as a part of the repayment plan.Due to laws that changed in 2005, not only is bankruptcy harder to file for, it no longer erases all debt either. There are many restrictions about what can and cannot be included in the proceedings. Alimony, back child support, student loans and certain tax debts are but a few that are not included. The standards are now very difficult to meet, and it is all a part of a lobbying effort made by credit card companies who felt that consumers were abusing the system. For the consumer in serious, unpayable debt, it is no longer the easy solution it once was.
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