What Are The Different Bankruptcies – The most common types of personal bankruptcy are Chapter 7 and Chapter 13, but there is also Chapter 11 for businesses and Chapter 12 for family farmers. The infographic below provides an overview of the differences between Chapter 7 and Chapter 13 bankruptcy. For more information, scroll below the infographic to learn more about the different types of bankruptcy.
The federal bankruptcy laws provide for four types of bankruptcy, which are briefly described below. Click on a title for more information on that type.
What Are The Different Bankruptcies
Chapter 7 is known as a “direct” or “liquidation” bankruptcy. This is a common bankruptcy for individuals. It involves liquidating all non-exempt assets to be used to pay creditors. The remaining unpaid debt upon liquidation is released or forgiven. Individuals, corporations, and partnerships qualify for Chapter 7 bankruptcy.
Walking Away From Debt Vs. Filing Bankruptcy
Chapter 11 is known as a “reorganization.” It is preferred by businesses because they can still carry out business operations during bankruptcy. It is more complex than Chapter 7 and mainly involves debt restructuring. Assets are seized and the debtor has 120 days to submit a debt settlement plan.
Chapter 12 is a bankruptcy option specifically for family farmers. Like Chapter 11, a farmer can keep his farm property and other assets while making a plan to pay off the debt.
Chapter 13 provides a way for people with a regular source of income to pay off their debts over a period of time under the supervision of the courts and an appointed trustee. The debtor can keep their assets in Chapter 13. A portion of the debt can be discharged (based on the person’s income) and the rest is paid off within 3 to 5 years of the debt repayment plan.
You must have enough money to cover the payment plan. Secured debt cannot be more than $1,149,525 and unsecured debt cannot be more than $383,175. Bankruptcy is a legal process that allows individuals, businesses, and other organizations to discharge debts when they can no longer pay them. they pay The primary purpose of bankruptcy is to give debtors a fresh start with the secondary task of paying off as much of the debtors as possible without continuing to burden the debtor.
How Much Does Bankruptcy Cost?
In bankruptcy proceedings, after assessing the assets and liabilities of bankrupt individuals and businesses, the judge and receiver decide whether to discharge the debts. If the judge and trustee decide to discharge the debts, the person or business that filed for bankruptcy is released from the obligation to pay them.
Before a debtor can file for bankruptcy, the person must make a complete list of all debts, assets, income and expenses. This helps the individual and anyone else involved in the bankruptcy filing (including the potential petitioner) gain a clear picture of their financial situation.
Additionally, within 180 days prior to each filing, bankruptcy courts require applicants to obtain credit counseling from a state-approved counseling center. This usually takes less than two hours over the phone or online and is done to ensure that all possible alternatives to bankruptcy (such as debt consolidation and debt settlement) are adequately explored. After the counseling session is completed, a certificate is issued and must be included in the bankruptcy file.
This bankruptcy action usually involves paying unsecured creditors by liquidating the debtor’s assets that are not exempt from liquidation under state or federal law.
What Is Bankruptcy?
Assets that are generally considered exempt include your home, car used for work, retirement income, Social Security and Social Security checks. These types of assets are protected from liquidation to pay the debt.
Exempt assets, however, include cash, bank accounts, stock market funds, jewelry, collectibles, and any used homes or cars. These types of nonexempt assets will be liquidated under a Chapter 7 proceeding, with the proceeds used to pay creditors.
Chapter 13 bankruptcy is filed by individual debtors with incomes above the state median in which they live, and is an option for people whose incomes may be too high to file for Chapter 7 relief.
This type of bankruptcy process involves developing a three- to five-year payment plan that calls for paying certain debtors to relieve other debts. When the payment plan is met, the remaining obligations are paid off.
What Are The Different Types Of Bankruptcy?
Chapter 11 bankruptcy is often used by businesses, although some people use it when their debts exceed the limits provided in Chapter 13. Chapter 11 is considered a bankruptcy “restructuring” process because it allows the business to continue to works until debts are restructured. .
Businesses ranging in size and scope from large multinational corporations to relatively small partnerships use Chapter 11 to pay off debts over time without selling assets or going out of business.
Regardless of the type of bankruptcy, after a mandatory debt counseling session, the debtor files for bankruptcy in the debtor’s district court. This triggers an automatic stay that prevents creditors and collection agencies from further contacting or harassing the debtor.
This information is then transferred to a court-appointed receiver – usually a bankruptcy attorney, who oversees and manages the entire process, while maintaining contact with the applicant and requesting additional information when necessary.
What Is The Difference Between Chapter 7, Chapter 11, And Chapter 13 Bankruptcy?
When applying, the applicant provides information on the average income for the last six months. If that income is below the median income for his state, he can file for Chapter 7 bankruptcy protection.
However, if that income is above the median, the applicant must fill out a form detailing monthly income and expenses to determine if they have the means to pay off the balance of the loan within three to five years. If the means test shows that the debtor can do so, then you file under Chapter 13 bankruptcy protection.
Regardless of the type of bankruptcy, after a mandatory debt counseling session, the debtor files for bankruptcy in the debtor’s district court. This triggers an automatic stay that prevents creditors and collection agencies from further contacting or harassing the debtor. When filing for bankruptcy, the debtor provides information related to income, expenses, names of creditors, amounts owed, and assets. This information is then transferred to a court-appointed receiver – usually a bankruptcy attorney, who oversees and manages the entire process, while maintaining contact with the applicant and requesting additional information when necessary.
When applying, the applicant provides information on the average income for the last six months. If that income is below the median income for his state, he can file for Chapter 7 bankruptcy protection. However, if that income is above the median, the filer must fill out a form detailing monthly income and expenses to determine if he has funds to pay off part of the debt within three to five years. If the means test shows that the debtor can do so, then you file under Chapter 13 bankruptcy protection.
What Happens When You File For Bankruptcy?
Although consulting an attorney is not a requirement for filing bankruptcy, it is often recommended. A clear understanding of the state and country laws that apply to your situation can lead to the best outcome of which loans are ultimately granted. Judges and court officers, including the applicant, are not authorized to give legal advice on your application. There are important differences between filing for Chapter 7 and Chapter 13 bankruptcy.
Either way, there will be a lot of forms to fill out, and if you don’t fully understand the laws and procedures surrounding your case, the outcome may not be what it would be with an experienced attorney by your side. Look for free (pro bono) options for legal services if you cannot afford to hire a lawyer.
Within three to six months of filing for Chapter 7 bankruptcy protection, a person must attend a meeting of creditors, usually held in the debtor’s county. This meeting gives creditors an opportunity to ask the debtor questions in person, although credit card companies and major banks rarely take the opportunity to demonstrate.
The trustee asks questions related to the forms submitted by the applicant in an interview, which is usually only a matter of minutes. Although all existing creditors have the right to ask questions, there is little they can do to stop the inevitable issuance of debt that occurs several months after the creditor meeting.
How Bankruptcies Work
Before being discharged under Chapter 7, the debtor will undergo a brief session of budget counseling through a state-approved credit counseling agency.
Once completed, the discharge removes credit card debt, debts, medical expenses, legal fees and judgments. However, debts including, but not limited to, public student loans, taxes, alimony and child support, debts incurred after filing bankruptcy, and debts arising from drunk driving are not discharged in bankruptcy.
In addition, bankruptcy cannot relieve co-signers of financial obligations in whole or in part