There are different types of bankruptcy protection
designated by the US. Bankruptcy Code under which a debtor may file.
Each type of bankruptcy is named for the chapter it can be found under
in the Bankruptcy Code. When a person says that they are filing for
Chapter 7, they are really saying that they are filing for bankruptcy
under the laws of Chapter 7 of Title 11 of the United States Code.
The most common types of bankruptcy:
Chapter 7: This involves the liquidation of only
non-exempt assets in control of the debtor. If any assets are
liquidated and money raised, the funds are used to pay creditors on a
pro-rata basis based on their "priority" level in the bankruptcy
system. A person can walk away from this type of bankruptcy with the
items listed as "exempt" intact. The debtor is also authorized to keep
any income earned after the bankruptcy was filed. This means that money
earned after a person files for bankruptcy may not be used to pay the
debts listed in the terms of the bankruptcy. Restrictions apply to
individual debtors filing for chapter 7 protection. An individual must
pass a "means test" before being approved to file for Chapter 7. Those
who fail to meet the requirements may file under another type of
bankruptcy. Chapter 7 is by far the most common, and typically, the
most desirable type of bankruptcy for the debtor because it involves no
repayment plan.
Chapter 11: Commonly applied to businesses,
Chapter 11 allows businesses to continue to operate while paying off
lenders under a court supervised and approved repayment plan. Business
owners are allowed to reorganize their debts into a plan of their own
design. A bankruptcy court will approve or disapprove of the business'
plan to repay. Chapter 11 can be beneficial because it allows a
business to continue operating during the bankruptcy and also typically
allows the debtor himself to remain in control and possession of assets.
Chapter 12: Chapter 12 applies to farmers and
fishermen who earn regular income. Individuals who file under this
chapter are allowed to maintain control of their assets while lenders
are paid off according to a reorganized debt plan. The fact that the
borrower in this case gets to maintain control of their assets means
that the individual will be allowed to continue to farm or fish while
debts are settled. The amount of assets a person gets to keep control
of will be important when considering life after bankruptcy.
Chapter 13: Chapter 13 allows "wage-earning"
individuals to restructure their debts and discharge the portion that
can not be paid off in five years. Under this plan, a lender may be
paid back the entire amount of the debt with interest or only paid back
a small percentage of the original debt depending on the debtors
financial circumstances. This plan is used by debtors who do not
qualify for Chapter 7 filing or want to keep valuable assets that are
not exempt.
Bankruptcy is an unfortunate life event that can
take a toll on personal relationships, but with bankruptcy options to
choose from, it's safe to say that there's a bankruptcy for everybody.
In all seriousness, a person should not fear
filing for bankruptcy protection thinking that they won't qualify or
that the plan won't help. The U.S. Bankruptcy Code offers many
different bankruptcy options because it recognizes that every person
has different financial circumstances. Also remember that
considerations may be taken by the judge presiding over the case in
bankruptcy court. Borrowers thinking of filing for bankruptcy should
consult with an experienced bankruptcy attorney to determine which
bankruptcy option would be the most beneficial for their particular
circumstances.
Article Source: http://
www.articlesbase.com/personal-finance-articles/the-different-
types-of-bankruptcy-2101035.html About the Author
Timothy G.McFarlin is an Attorney at McFarlin
& Geurts with expertise in a variety of practice areas
including real estate law, debt reorganization, bankruptcy, business
litigation, and consumer law and mortgage litigation. Clients range
from individual consumers to large national corporations.
http://
www.mcfarlinlaw.com/bankruptcy_basics.php | 