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The primary purpose of Chapter 7 and 13 bankruptcies is to receive a Discharge of Debts.

 


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Purpose and Background of Bankruptcy

Bankruptcy is a process provided by Federal law that allows financially distressed individuals to have some or all of their debts eliminated. There are two classes of bankruptcy: liquidation and reorganization. The two most common types of bankruptcy are Chapter 7 liquidation and Chapter 13 reorganization.


Chapter 7 is referred to as “liquidation” or “straight bankruptcy.” It is used primarily by individuals who wish to free themselves of burdensome debt simply and inexpensively.


Chapter 13 or reorganization is designed for individuals to repay part or all of their debts, usually based on their ability to repay. It involves filing a plan with the bankruptcy court proposing how the debtor will repay creditors and debts. Some creditors must be repaid in full; others are only repaid a percentage of the original debt; others may not be paid at all.


The primary purpose of Chapter 7 and 13 bankruptcies is to receive a Discharge of Debts. This gives debtors a fresh start. The discharge has the effect of eliminating debts.


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