When bankruptcy becomes a necessity because of a bad financial situation, an individual will have to determine whether they should file for Chapter 7 or Chapter 13 bankruptcy. Understanding the differences between them is very important because they are separate and unique filings.

Chapter 7 bankruptcy is the one that most people seek to file. When a person files for bankruptcy under Chapter 7, their assets are liquidated to pay what is owed to the creditors. The courts decide on a reasonable amount for payment based on individual circumstances.