Bankrupty is an option for consumers and businesses in desperate need of financial relief. It is a process by which a court either eliminates one’s debts or approves a repayment plan under the discretion of the court. The four most common types of bankruptcy filings are Chapter 7, Chapter 11, Chapter 12, and Chapter 13.
Some bankrupcies are considered “liquidations”, in which property is seized and sold in exchance for an elimination of debt. Other bankrupcies are “reorganizations”, in which some debt still must be repaid in accordance with court supervision after the bankruptcy.
Chapter 7
Chapter 7 bankruptcy is liquidation bankruptcy. It can be filed both by consumers and businesses, with a main of goal of discharging debt. The filer’s property is taken and sold to pay off as much unsecured debt as possible, and most or all of what remains generally is discharged.
Not all of your property will be liquidated, however. The court will leave you with enough property to utilize in order to re-start your finances, and some assets automatically are exempt. In addition, if you have very little property to begin with, the court may deem you a “no asset” case, and all of your property will be exempt. In such circumstances, creditors may not receive any payment at all, and you may enjoy a clean financial slate.
Some types of secure debt also can be discharged, although this is much more rare. As a filer, you have a choice to handle your secure debt either by allowing your creditor to repossess your propety, continue payments as part of a plan with the agreement of your creditor, or to pay your creditor the amount equal to your secured property.
Chapter 7 is one of the most popular forms of bankruptcy filing, and most people choose this form if they are able to do so. If your income is considered too high, you may not be able to file Chapter 7. The entire process usually takes between three and six months.Chapter 13
Chapter 13 is the other most popular form of bankruptcy filing. Unlike Chapter 7, 13 is reorganization bankruptcy and is for use only by consumers. In Chapter 13, you agree to a repayment plan on your unsecured debt under the discretion of the bankruptcy court. Some of your creditors may end up being paid in full, some may not be paid at all, and some may receive partial payment. The amounts that you will be required to pay are determined by the court through a number of different factors including income and amount of the debt.
For debt that is secured, the filer may be able to pay missed payments in lieu of repossesion.
Chapter 13 often is not preferred in comparison to Chapter 7, because it requires you to pay your debt instead of discharging it. However, many consumers are not eligible for Chapter 7, so 13 is their best bet. In addition to too high of an income, you might not be eligible for Chapter 7 because of past bankruptcy filing. In order to be eligible for Chapter 13 you must have sufficient income to pay off some of your debts. Your secured debt must be less than $922,975, and your unsecured debt must be less than $307,675. Thousands of people file for Chapter 13 bankruptcy every year.
Chapter 11
Like Chapter 13, Chapter 11 also is reorganization bankruptcy. While it is available both to consumers and to businesses, it is utilized almost entirely by businesses because it is expensive and complicated. It is a good option for individuals with debts more than that of the Chapter 13 limits, or who have many assets.
Chapter 12
Chapter 12 is reorganization bankruptcy, as well. It is like Chapter 13, but designed specifically for farmers and fisherman whose debt is made up of at least 80% occupational costs. Chapter 12 offers the power to eliminate liens, as well.
Is bankruptcy right for me?
No matter which form of bankruptcy you are considering or for which you may be eligible, there are careful considerations that you should make before embarking on the road to filing. While bankruptcy can be a very useful way to rid oneself of, or to manange, suffocating debt, it always should be considered a last resort for anyone in need of a financial solution. You should explore every other available option before filing bankruptcy. It is not a “quick fix”, but is instead a very serious blemish on your credit history and financial livelihood.
On the other hand, it can discharge your debt, or grant you the ability to pay only what your situation allows. With the “automatic stay” policy in effect upon filing, creditors will be prohibited from harrassing and further trying to collect for you.
You should consider the types of debts that you owe to determine whether or not bankruptcy is worthwhile for you. Some forms of debt very rarely (or never) are dischargable, such as tax debt, student loans, and child or spousal support. If your debt is made up of such types, look for another solution. Individuals consumed with credit card debt, on the other hand, often have much luck with discharge through bankruptcy.
Bankruptcy can do wonders for consumers and businesses in difficult financial decisions, but filing is not a decision to take in stride. Consider your options, and if bankruptcy is the only viable alternative, then work with an attorney who can help you to choose the liquidation or reorganization filing that is best for you.
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