• The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 added steps to the filing process, but many Americans in financial crisis are still eligible to file for bankruptcy protection. Individuals wishing to file must satisfy a financial counseling/education requirement and submit to a means test.

    Bankruptcy Basics

    U.S. bankruptcy laws offer citizens a clean break from oppressive debts. Of the many levels of bankruptcy protection, most individuals file either for Chapter 7 or Chapter 13.

    Chapter 7: Liquidation

    Chapter 7 bankruptcy is often referred to as a "fresh start" because eligible debts are discharged, and no repayment plan is made. A trustee takes charge of the debtor's assets, sells (or liquidates) them and uses proceeds to pay creditors. If a person has no assets, unsecured creditors get nothing, and the debtor is no longer liable for those debts.

    Chapter 13: Individual Debt Adjustment

    With Chapter 13 bankruptcy, a debtor proposes a plan to repay creditors within a certain amount of time--usually three to five years. Chapter 13 may allow debtors to keep a valuable asset (such as a home).

    Counseling/Education Requirement

    Bankruptcy comes with two educational requirements. A filer must go through credit counseling from a government-approved organization six months or less before filing. After filing, he or she must take a debtor education course before debts can be discharged.

    Means Testing

    Application of a means test is required to determine whether an individual qualifies to file Chapter 7 or Chapter 13 bankruptcy. People who earn more than the state median family income (determined by the U.S. Census Bureau) may not be eligible for Chapter 7 protection.


    U.S. Trustee Program/Dept. of Justice

    United States Bankruptcy Courts

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