Many people severely misunderstand how bankruptcy really works. It’s commonly thought that if you file for bankruptcy you’ll lose everything you own. Nothing could be further from the truth. The bankruptcy code contains provisions that protect (or exempt) property from your creditors. Exemptions make it possible for individuals to get a fresh start while holding onto their most valued assets.
Relatively new legislation has framed bankruptcy to limit the amount of Chapter 7 bankruptcy filings. This is controlled by restricting Chapter 7 bankruptcy to only people that fall under the median state income, when adjusted for inflation and family size. Individuals above the median household income can only file for Chapter 13 bankruptcy. The new laws further changed Chapter 13’s duration to a compulsory 3-5 year period.