Bankruptcy is a legal procedure that provides relief or protection from repaying debts and creditor harassment. The debtor is the individual who owes money and is in debt. The creditor or lender is the company or individual that debt is owed to. After discharge of debt, a debtor does not have personal liability to pay specific debts. 

According to the Bankruptcy site, exempt property is protected from creditors and is not liquidated in the bankruptcy process. Exempt property varies depending on state law. However, in most states, exempt property includes a car, clothing, tools used for work and household items, secured debt secured that finances the purchase of property. Examples of secure debt are mortgages or car loans. 

If a debtor fails to pay their mortgage or car loan, the lender may foreclose on the mortgage or repossess the car. Deficiency judgments are entered when a secured debt is worth more than the repossessed or secured property. The facility judgments are dischargeable through bankruptcy. 

There are two types of consumer bankruptcy. According to Experian, Chapter 7 is called Liquidation Bankruptcy, and Chapter 13 is referred to as wage earner. The court uses a means test to determine which debtors are eligible for Chapter 7 and which setters should be filed under Chapter 13. With Chapter 7, the debtor’s nonexempt assets are liquidated and distributed to creditors. 

After the process is complete, debts are discharged. Chapter 7 can only be done once every eight years and shows up on the credit for 10. With Chapter 13, debtors organize their debts into a repayment plan, which lasts 3 to 5 years. The debtor is supervised by the court when organizing the repayment plan. Chapter 13 allows the debtor to keep most non-exempt property that would be liquidated under chapter 7.