Reorganization bankruptcy, usually under Chapter 13, happens when you file to a bankruptcy court a plan on how you intend to settle your debts.  You indicate how much each of your creditors will get, depending on your finances.  There will be a three or five year repayment plan, only after which can you be discharged of your debts, if any still remains.  At times, however, due to obvious financial difficulties, the court itself decides to give a discharge earlier than planned and this is what usually happens.

An additional requirement for both types of bankruptcy is completion of credit counseling conducted by an agency recognized and approved by the United States Trustee’s office.  This helps you look closely at the situation at hand and identify if bankruptcy is really essential.  This allows you to see several possibilities of informal repayment which you may have overlooked in the past.  Even if such is obviously impossible, counselling remains a major requirement.  Furthermore, completion of post-counselling is required after the proceedings.  This aims to teach you financial management to avoid encountering the same situation in the future.  The bankruptcy discharge will not be released unless this is fulfilled.

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