What Are The Different Types Of Bankruptcy?

Are you swimming in debt and can’t seem to keep your head above water?  Perhaps you have been transferring credit card balances, borrowing money from families and friends, and asking for overtime at work, only to find you still cannot fix your financial problems.  If this is the case, it might be time for you to consider bankruptcy.

There are several different types of bankruptcy, though as an individual most people only consider one or two.  Chapter 11 bankruptcy is usually for businesses, either those that are incorporated or, in some cases, sole proprietorship.  It allows businesses to restructure their debt and begin a repayment plan.  During Chapter 11, a trustee will be appointed to run the company and will be able to apply for loans in order to help the company come out of bankruptcy.

Chapter 7 bankruptcy is sometimes filed when Chapter 11 bankruptcy for a company didn’t work.  Chapter 7 means the company must close, and all assets sold so that creditors can be repaid.  Creditors are put on a list, from secured to unsecured, and not all of them can expect payment.  A Chapter 7 bankruptcy is a total liquidation of all company possessions.

Types Of Personal Bankruptcy

Though Chapter 11 bankruptcy is usually done by companies, individuals and companies both can apply for Chapter 7 bankruptcy.  When an individual applies for Chapter 7, it usually means all other attempts at paying down debt have failed.  It is by far the most common bankruptcy in the United States.

Though most debt will be eliminated with Chapter 7, not all of it is allowed to be discharged.  Child support payments and alimony are not affected by bankruptcy; they must continue to be paid.  Also, student loans are generally not discharged by bankruptcy, unless the debtor can show that holding onto the student loans creates a particularly harsh financial difficulty.

Property taxes are usually not discharged in Chapter 7.  Neither are income taxes that were assessed within the past 3 years.  All debt that the debtor incurred while operating a fraudulent business or otherwise defined scam must be repaid.  In addition, any court charges, fees, or fines are not allowed to be discharged.

After someone has filed for a Chapter 7 bankruptcy and it has been discharged in court, the bankruptcy will remain on the person’s credit report for 10 years.  This makes it difficult for people to apply for credit after they file for bankruptcy, although there are lenders who are willing to work with what they consider high-risk individuals.  Usually, lenders will want someone to wait two years between filing for bankruptcy and applying for new credit.

What You Need To Know About Filing For Bankruptcy

There are two other bankruptcies available for individuals.  The first one is Chapter 12, which is only available to farmers and fisherman.  Because of this, it is not common to see this bankruptcy listed anywhere.  In 2009, less than 400 people in the entire United States filed for this bankruptcy.

Basically, Chapter 12 extends more benefits to farmers and fisherman than they would obtain under Chapter’s 7 or 13 bankruptcies.  The benefits are there to make up for the fact much of their income is based on the whims of nature, and therefore cannot be predicted in any reasonable manner.  Generally speaking, this bankruptcy has a higher debt ceiling for debtors, and more generous exemptions.

Chapter 13 Bankruptcy For The Individual

Under Chapter 13 bankruptcy, a person does not have their entire debt load cleared.  Instead, their debt is reorganized and a payment plan is set forth that usually takes 3 to 5 years to complete.  Under Chapter 13, it is easier for a person to hold onto their house and car.  It also only stays on their record for 7 years after filing, compared to the 10 years that Chapter 7 will stay on their credit report.

When filing for Chapter 13, a person must attend sessions with an approved credit counseling service or agency.  It is important that they use a service that is recommended by the court, or else the counseling edict will not be considered to have been fulfilled.

Someone filing for this bankruptcy will have to show the court a repayment plan.  They will also have to meet with their creditors, and answer any questions put to them.  Because they are under oath when this happens, it is vitally important that a person does not lie to creditors or the court.  If they do, a serious offense can be filed against them.

Sometimes Bankruptcy Makes Sense

For many people, bankruptcy is the only way out.  They might have made some financial mistakes and, because debt can quickly snowball, find themselves unable to repay their debt.  Also, medical and other emergencies can force someone into bankruptcy.  There are different types of bankruptcy available, and an attorney who specializes in bankruptcy cases will be able to answer any questions a person has.

If you are filingn either a chapter 7 or thirteen bankruptcy it is now mandatory receive credit counseling for bankruptcy.

Types Of Bankruptcy