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An overview of personal bankruptcy options

Sooner or later, Massachusetts residents who are in over their heads with debt will start wondering if bankruptcy is a way out. Understandably, however, many people don't have a clear idea of what personal bankruptcy entails.

Bankruptcy is a legal procedure in federal court that allows a debtor to erase debts, often after making partial repayments to creditors. There are two main types of bankruptcy protection available to individuals: Chapter 7, which is a liquidation procedure, and Chapter 13, which is a reorganization of debts.

In a Chapter 7 bankruptcy, some of the debtor's property is liquidated, which means it is turned over to the bankruptcy trustee and sold to pay debts. But, some property is exempt from liquidation, such as clothing, an automobile and the equity in one's homestead. Once the non-exempt property is liquidated, many of the debtor's unsecured debts - those for which the debtor has not put up collateral - are wiped out.

Chapter 13 bankruptcy is an option for debtors with a steady source of income. The debtor in Chapter 13 has to submit a repayment plan for approval by the bankruptcy court. The plan will last from three to five years. The repayment plan is based in part on the debtor's income. If the debtor successfully completes the repayment plan, any dischargeable debt remaining at the end of the plan is wiped out.

Filing for bankruptcy is a major decision. Although making the decision to file for bankruptcy can be difficult, those who complete the process often feel a huge sense of relief at being free from overwhelming debt.

Source:, "Bankruptcy Definition: What Exactly Is It?" accessed Jan. 27, 2017

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