Persons seeking relief under the Bankruptcy Code may file a petition for relief under a number of different chapters of the Code, depending on circumstances. Consumers usually file Chapter 7 or Chapter 13.
Chapter 7: Liquidation
Liquidation under a Chapter 7 filing is the most common form of bankruptcy. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors. Because each state allows for debtors to keep essential property, most Chapter 7 cases are “no asset” cases, meaning that there are not sufficient non-exempt assets to fund a distribution to creditors.
Chapter 13: Reorganization
Bankruptcy under Chapter 13 is a more complex reorganization and involves allowing the debtor to keep some or all of his or her property and to use future earnings to pay off creditors.