Deciding Which Chapter to Seek

• Two types of bankruptcy are most commonly used by individual debtors -- Chapter 7 and Chapter 13 (Chapter 11 is used primarily by corporate debtors). Under Chapter 7, your assets are liquidated and distributed to creditors. At the end of the process, you receive a full discharge of all eligible debts. Some debts, such as student loans, cannot be discharged, and some of your assets, such as your work tools, cannot be liquidated, so you get to keep them. Under Chapter 13, you keep your assets and repay your debts over a period of three to five years. Although no general discharge is usually available under Chapter 13, the interest on your debts can be forgiven.
  
  

Preliminary Steps

• You may be required to complete a credit counseling program with an agency approved by the U.S. Trustee's office before filing for bankruptcy. Your local bankruptcy court will have bankruptcy petitions available for download from its website. You must put together a comprehensive list of your creditors, because you may be sanctioned by the court if you fail to list even one creditor on your petition. You will also have to provide complete information about your assets and income.
  
  

Procedure

• File with the bankruptcy court that's in the judicial district where you live, regardless of where any property you own is located. You will have to submit a variable filing fee of several hundred dollars. The court may accept your petition, deny it or convert it to another type of bankruptcy; it may convert a Chapter 7 petition to a Chapter 13 petition, for example, if your income exceeds certain thresholds. The court will then appoint a bankruptcy trustee to oversee your assets. If you are filing under Chapter 13, you will need to prove that you have a regular source of disposable income with which to make payments.
  
  

Creditors

• Your creditors are entitled to participate in bankruptcy hearings to protect their own interests. Under Chapter 13, the court will appoint a creditor's committee from among your unsecured creditors, and you will have to negotiate the terms of a payment plan with them. Under Chapter 7, some of your assets will be declared exempt from seizure and liquidation, and your creditors may dispute whether or not certain assets should be exempted.