The most common type of Bankruptcy that is filed for is Chapter 7 Bankruptcy. This is a liquidation bankruptcy rather than a reorganization bankruptcy. This means that assets will be sold to clear the debt or debts.
It starts by the person in debt listing their assets. With Chapter 7 Bankruptcy the debtor is allowed to keep what is called "exempt" property. Examples of exempt property are
a certain amount of home equity
a small amount of vehicle equity
small allowance for clothing
small allowance for other personal items.
The value of these exempt properties differs depending on what jurisdiction you file for Chapter 7 Bankruptcy in.
A trustee will be appointed who will gather the debtors assets ready for sale. The proceeds will then be distributed to creditors according to priority. Even after declaring Chapter 7 Bankruptcy there are some debts that will still be require to be paid off. These are called non-dischargeable debts and some examples are
child support
student loans
DWI fines or penalties
taxes.
Secured debts are those where the creditor has an interest in the property of the person filing for bankruptcy. It may be that the loan was used to purchase the property. Secured debts take priority over non-secured debts. If the sale of the property is insufficient to repay the secured debt then the remained of the debt becomes classed as a non-secured debt.
Non-secured debts are the last debts to be cleared off in bankruptcy proceedings. They may even end up completely discharged if there are not enough assets. This is what happens in many Chapter 7 Bankruptcy cases. An example of a non-secured debt is a credit card debt.
