My youngest niece is studying finance and asked me a question about her latest subject that giving her some trouble. When I heard what the subject was I wasn't to surprised that she was having difficulty giving that bankruptcy is confusing. The different chapters and varying rules from one jurisdiction to the next can make most people wonder just what in the heck does bankruptcy really mean? What do the chapters mean? Chapter 7 is the total liquidation of non-exempt assets that you normally associated with the term bankruptcy. The funds obtained from the sale are used to pay off the debt. If the funds generated by the sale doesn't cover the full amount of the debt the remaining debt is forgiven. So as you can see even though this is the most straight forward version of bankruptcy it is still confusing. It still leaves a few questions, such as, what are the exempt assets? And who determines how much of each debt gets paid? Chapter 11 is a re-organization of debt for businesses letting the businesses still run while paying off the debt. In this form of bankruptcy they have a time limit (no more than 120 days) to come up with something that there creditors can agree with on how to get repaid. The repayment must usually take place over a 3-5 year period. Chapter 12 is a version of chapter 11 for farmers so the farmer can keep the land. By the same token chapter 13 is the individual version of chapter 11. Doesn't going bankrupt ruin my credit? Not exactly, it can make it tough depending on which chapter you use when you file. Chapter 7 will probably take longer since it is a serious form of bankruptcy but you should still be able to start rebuilding credit within a few years. After your bankruptcy though your rebuilding will be almost the same as if you were starting all over from the time before you had credit. The one big difference is though you will have blots on your credit history that must be cleared up. Will bankruptcy take care of all my debt? No, there are certain areas of debt that bankruptcy won't fix. Mainly, for individuals bankruptcy doesn't effect any secured debt including: mortgages, liens, taxes and penalties owed to the IRS or other government entity, student loans, child support, debt that wasn't declared during filing for bankruptcy or legal fees. There maybe some other debts that aren't covered depending on which version of bankruptcy you use and the state you file in when you declare bankruptcy.