There are generally two types of bankruptcy that help protect people who are experiencing financial situations that do not allow them to pay their creditors: Chapter 7 and Chapter 13 of the Bankruptcy Code, explained later.

Then there are the Chapter 11 processes that generally apply to people who have assets above the debt limits established for Chapter 13 and want to protect those assets against collections from their creditors.

Generally, filing a bankruptcy petition sets in motion a legal mechanism called an “automatic stay”. This mechanism stops all legal collection processes against the person and also forces creditors to stop all contact with the person who declares bankruptcy. Because of this, property eviction or eviction processes, property auctions, vehicle repossessions, wage garnishments, and bank accounts are stopped.

The goal of Chapter 7, also called direct bankruptcy or liquidation, is to give the debtor a fresh start. Chapter 7 seeks to eliminate all those dischargeable debts, which are the majority of debts. In these types of cases, the court appoints an administrator or trustee to determine if there are nonexempt assets that can be sold or liquidated to pay creditors. However, in most of these cases all or nearly all of the debtors’ assets can be exempted, and generally the debtors end up keeping all of their assets.