Chapter 7 bankruptcy, also known as “straight bankruptcy,” is what most people probably think of when they’re considering filing for bankruptcy.

Under this type of bankruptcy, you’ll be required to allow a federal court trustee to supervise the sale of any assets that aren’t exempt (cars, work-related tools, and basic household furnishings may be exempt). Money from the sale goes toward paying your creditors. The balance of what you owe is eliminated after the bankruptcy is discharged. Chapter 7 bankruptcy can’t get you out of certain kinds of debts. You’ll still have to pay court-ordered alimony and child support, taxes, and student loans.

The consequences of a Chapter 7 bankruptcy are significant: you will likely lose property, and the negative bankruptcy information will remain on your credit report for ten years after the filing date. Should you get into debt again, you won’t be able to file again for bankruptcy under this chapter for eight years.

Chapter 13 bankruptcy works slightly differently, allowing you to keep your property in exchange for partially or completely repaying your debt. The bankruptcy court and your attorney will negotiate a three- to a five-year repayment plan. Depending on what’s negotiated, you may agree to repay all or part of your debt during that time period. When you have completed the agreed repayment plan, your debt is discharged, even if you only repaid part of the amount, you originally owed.

While any type of bankruptcy negatively affects your credit, Chapter 13 may be a more favorable option. Because you repay some (or all) of your debt, you may be able to retain some assets. What’s more, a Chapter 13 bankruptcy will cycle off your credit report after seven years, and you could file again under this chapter in as little as two years.

Filing for bankruptcy is not a panacea to save you from all your financial burdens. You will most likely lose most of your property that are non-exempt possessions that have some value, or you will have to be placed on a debt-relief or wage-earner’s plan. This will give you an opportunity to develop a plan to help repay all your debt and keep what you have. Both will allow you to begin anew with a fresh start but filing for bankruptcy does impact your credit score making it hard to borrow money when you need it, not to mention that if you do chapter 7, the effects last for up to 10 years, for chapter 13, it about 7 years. Bankruptcy can also affect friends and family that decided to help you by co-signing a loan. If you are considering bankruptcy, your credit report and credit score probably are damaged already. Your credit report may improve, especially if you consistently pay your bills after declaring bankruptcy. Still, because of the long-term consequences of bankruptcy, some experts say you need at least $15,000 in debt for bankruptcy to be beneficial.

Bankruptcy does not necessarily erase all financial responsibilities.

It does not discharge the following types of debts and obligations:

• Federal student loans (unless you meet strict criteria)
• Court-ordered alimony and child support
• Debts that arise after bankruptcy is filed.
• Some debts incurred in the six months before filing bankruptcy.
• Some taxes
• Loans obtained fraudulently.
• Debts from personal injury while driving intoxicated.

It also does not protect those who co-signed your debts. Your co-signer agreed to pay your loan if you did not or could not pay. When you declare bankruptcy, your co-signer still may be legally obligated to pay all or part of your loan.