Bankruptcy laws are designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as "liquidations" or "reorganizations." Chapter 7 bankruptcy is the liquidation variety and Chapter 13 bankruptcy is the most common type of "reorganization" bankruptcy for consumers.
Generally, after filing for bankruptcy, the automatic stay offers potent legal protection against bill collectors. The automatic stay immediately stops any lawsuit filed against you and most actions against your property by a creditor, collection agency, or government entity. Especially if you are at risk of being evicted, being foreclosed on, being found in contempt for failure to pay child support, or losing such basic resources as utility services, welfare, unemployment benefits, or your job (because of a raft of wage garnishments), the automatic stay may provide a powerful reason to file for bankruptcy.
All Bankruptcy Chapters have numerous rules -- and exceptions to those rules -- about what kinds of debts are covered, who can file, and what property you can and cannot keep.
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