What Types of Bankruptcies are There

You might have known it is possible to get protection from the law from creditors trying to foreclose on your assets so that they could recoup payment for debts. But what types of bankruptcies are there? And which one can you avail of? How can you qualify for certain bankruptcy filings? Learn the answer to these questions.

For people, businesses and government units that found themselves deep in debt, without cash, or credit, there are legal remedies that could help them discharge of debt or manage debt payment until they can get their finance back into good health.

Bankruptcies for Individuals

Chapters 7 and 13 under the U.S. bankruptcy code gives individuals the opportunity to deal with debts and creditors under the protection and/or supervision of the court. What to choose between the two would depend on what predicament a person finds himself in and on what scenario he intends to find himself after the bankruptcy filing. Chapter 7 bankruptcy or liquidation bankruptcy would cancel most of a person’s debt, but it would also be at the expense of most of his properties, which could be his house. A debtor might be able to save his house under Chapter 13, but it could mean he still would have to continue paying creditors within some 3-5 years.

It is because under Chapter 7, the court will sell any non-exempt assets of the debtor to pay creditors. Unexempt properties under Chapter 7 include a second vehicle or a second home. Exempt properties, those that a debtor are allowed to keep, include reasonable amount of clothing, household goods, and furnishings, and motor vehicles of up to a particular worth.

Discharge of Personal Debt

The debts are discharged after the bankruptcy whether or not proceeds from the liquidation satisfy all the debts and so it is said that Chapter 7 is better for people with little or no property to keep and lots of unsecured debts. But this doesn’t mean that all of the debts will be discharged. Only unsecured notes, debts, and loans may be forgiven. Some debts like alimony, child support, student loans and certain tax bills are not cancelled under both Chapter 7 and Chapter 13 bankruptcy filings. The process of settling secured debts varies depending on the bankruptcy filing, the state where the filing was made, among other factors. For bankruptcy-related information, visit www.nolo.com

Qualification for Personal Bankruptcy

Are people free to choose between Chapter 7 and Chapter 13 filings? The type of bankruptcy one could file for would depend on the person’s eligibility under the 'means test' introduced in October 2005. Under it the earnings of the individual is examined to see how it stands within the average income in the state where the person resides. If it is less then a person may qualify to file for Chapter 7 bankruptcy. If it is above, Chapter 7 filing is still possible if the person’s excess income is found to be insufficient to pay debts within 5 years and cannot pay a fourth of unsecured debt given the same amount of time to pay.

Chapter 13 filing is possible for people with enough income to pay some or all debts over a few years, typically 3 to 5 years. Aside from the ‘regular income’ requirement under the ‘means test,’ the person filing for Chapter 13 protection must have specified amount of both unsecured and secured debt, among other conditions. This amount varies from year to year.

Bankruptcies for Businesses, Cities, Farmers, and Fishers

The U.S. Bankruptcy Code also provides opportunities for businesses (typically corporations and LLCs), international companies, farmers, fishers, and cities to manage debt payments. Businesses may file Chapter 11 bankruptcy so that it could deal with secured and unsecured debt payments while continuing to operate the business. Farmers and fishers may file for Chapter 12; international companies Chapter 15; and cities Chapter 9.

While bankruptcy is always an option to solve debt problems, it also carries major consequences. It can lower credit rating and drive interest rates for loans higher. And so, experts advice that people and businesses consider thoroughly other alternatives before deciding to file for bankruptcy.


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