When people refer to bankruptcy, the most common connotation is that any debts that have been incurred would be abandoned and cancelled. This situation is actually true if a person files for Chapter 7 bankruptcy.
A person or individual who files for bankruptcy could use either Chapter 13 or Chapter 7 bankruptcy. Choosing between Chapter 13 and Chapter 7 is not just a simple decision. The bankruptcy court would have to look into the person or individual’s situation first before making a decision as to which type of bankruptcy should be used.
The Chapter 7 bankruptcy is usually awarded to persons or individuals who have no sources of regular income. Chapter 7 actually functions to alleviate and relieve people of their debts. This then gives the person or individual the opportunity to start fresh without any financial debts to think about.
When a person or individual files for Chapter 7 bankruptcy, the bankruptcy court then assigns a trustee who functions and serves as the channel between the bankrupt individual and the debtors. This trustee then keeps an eye on everything. He also checks and sees if the whole bankruptcy plan is working out as designed.
However, bankrupt individuals must also give up and renounce their belongings and properties to the trustee assigned by the bankruptcy court. These are later sold. The money is then used to pay off their debts. These individuals, however, have the opportunity to keep a part of the value of their homes, as well as keep their cars or some personal property. Most of their debts are cancelled out though.
If you think that filing for bankruptcy is a good way to get out of a dire financial situation, then think again. Bankruptcies are actually reflected on your credit report for a period of ten years. This also affects your credit rating by bringing it to a much lower score. This could prevent you from acquiring loans and the like.