Americans facing bankruptcy usually elect one of two types, Chapter 7 and Chapter 13, named for the relevant parts of federal bankruptcy law. The choice is based on the debtor’s assets, income, debts, and financial goals. Chapter 7 bankruptcy is primarily utilized by debtors with little or no disposable income. In theory, the debtor's assets above a certain exempted amount are liquidated and used to pay off their creditors, after which the debts are discharged, even if they are not fully paid off. In practice however, almost all debtors keep all of their property and belongings.
Chapter 13 bankruptcy, often called reorganization, generally puts the debtor on a budget and establishes a repayment schedule without liquidating any assets. This is available to debtors who have sufficient income to support a reasonable repayment schedule.
At the conclusion of either chapter, the debtor receives a "discharge" of most of his remaining debts. Some debts, however, such as domestic support obligations, most taxes and debts incurred by fraud are usually not dischargeable in either chapter of bankruptcy. But even these non-dischargeable debts can be made manageable through a Chapter 13 case and wage garnishments and other collection efforts can be halted.