2) "What are the most common types of bankruptcy?”

There are two basic forms of relief available in bankruptcy for the typical individual or family.

First, there is a Chapter 7 Bankruptcy filing. Since bankruptcy law is a part of the United States code of laws, the bankruptcy code is divided up into Chapters. Different chapters of the bankruptcy code deal with different aspects of debt relief. By far, Chapters 7 and 13 provide the most common relief needed for most folks. Of these two types of bankruptcy, in Iowa Chapter 7 is the type of fresh start that is chosen over 90 % of the time.

Chapter 7 is the most basic form of relief available to you in bankruptcy. It’s a way to eliminate many types of debt altogether in a period of time of typically about 3 months from the time we file the paperwork for you with the court to the time that the case is over.

The second most common type of bankruptcy, Chapter 13, is a way in which you can consolidate your debts. A Chapter 13 is sometimes also called a wage earner’s plan or debt consolidation, because in a Chapter 13 all of your debts are consolidated or lumped together, and you simply make one payment each month to a court-appointed trustee who pays out this money to your creditors according to a court-approved plan of repayment. It’s a total debt consolidation where you make a single payment to cover all of your debts and without any contact from your creditors. Your monthly payments can be surprisingly small since under a Chapter 13 plan interest charges, penalties, and late charges are often reduced or eliminated, and payments are stretched out over a period of years. Also, for certain types of debts, called unsecured debts, such as most credit cards and medical bills, you can obtain court approval of a plan which pays less than, and sometimes far less than 100% of that debt. If you have followed the plan and made your payments to the Chapter 13 trustee, then at the end of the usually 3 to 5-year period, most, though not all, types of debts that have not been paid in full are still wiped out or as we sometimes say, “discharged” and you no longer have any legal obligation to pay them.

A Chapter 13 is a very powerful way to prevent home foreclosures, car repossessions, tax levies, and garnishments. It can effectively be used to pay for cars, stereos, catch up on house payments, IRS taxes, and almost any other kind of debt. You can even stop a foreclosure on your home in certain circumstances. Again, with a Chapter 13, you can keep everything you own because you are paying your debt.