Bankruptcy is a broad word for a federal court process that assists individuals and corporations in getting out of debt and repaying creditors. If you can show your eligibility, the bankruptcy court will safeguard you throughout your bankruptcy proceedings. Bankruptcies are broadly classified into two types:
Sales and liquidations (Chapter 7)
Restructuring (Chapters 11, 12, and 13)
Chapter 7 and Chapter 13 bankruptcies are the most prevalent kinds of bankruptcy for individuals and corporations. Chapter 7 bankruptcies are often liquidations, which means that your property may be liquidated to pay off your obligations.
Chapter 13 bankruptcies, on the other hand, normally come under the reorganisation category, which means you will most likely be permitted to retain your property, but you must file and adhere to a plan that will enable you to return part or all of your obligations within three to five years.
101 on Chapter 7 Bankruptcy
Individuals and corporations may both petition for Chapter 7 bankruptcy. Typically, these processes span between three and six months.
Part of your property may be confiscated and auctioned in a Chapter 7 bankruptcy process to pay off some or all of your obligations. This is referred to as “property liquidation.”
However, as an advantage of this sort of bankruptcy procedure, any unsecured obligations (debts not backed by collateral) will be discharged. Furthermore, some sorts of property, such as your home’s furnishings, your automobile, and your clothing, cannot be sold in order to pay off your obligations.
In a Chapter 7 bankruptcy procedure, secured obligations are considered differently from unsecured ones. In a Chapter 7 bankruptcy procedure, you (the debtor) must choose between allowing the creditor to seize the property that secures the debt, continuing to pay the creditor on your debt, or paying the creditor an amount equivalent to the replacement value of the property that secures the debt. Furthermore, some kinds of secured obligations may be discharged in a Chapter 7 bankruptcy petition.
You must be able to demonstrate that you are qualified to petition for Chapter 7 bankruptcy before you can file. You cannot earn enough money (after deducting specified expenditures and monthly debt payments) to support a Chapter 13 bankruptcy repayment plan. Other conditions must be met in order to petition for Chapter 7 bankruptcy.
Debts are not discharged in a Chapter 7 bankruptcy.
While credit card debt, unsecured loans, and other obligations may be discharged under Chapter 7, child support, back taxes, and alimony payments cannot. See Obligations that Remain After a Chapter 7 Discharge for a list of other debts that will remain after a Chapter 7 bankruptcy filing.
101 on Chapter 13 Bankruptcy
Only persons with a steady source of income are eligible to apply for Chapter 13 bankruptcy, sometimes known as the “wage earner” bankruptcy process.
In a Chapter 13 bankruptcy in federal court, you must collaborate with the court to devise a repayment plan and adhere to it for the next three to five years. The amount you must pay is determined by your income, the amount of debt you owe, and how much the creditors of your unsecured loans would have gotten if you had filed under Chapter 7 rather than Chapter 13.
To be qualified to apply for Chapter 13 bankruptcy, you must be able to demonstrate that your debt is under the filing limitations. If your assets exceed any of these thresholds, you may be unable to petition for Chapter 13 bankruptcy protection.
Even if you are behind on payments, Chapter 13 bankruptcy may enable you to settle secured debts without having the property that secures the obligation confiscated. You may be able to include past-due payments into your debt repayment plan and pay them off over time.
101 on Chapter 11 Bankruptcy
Struggling firms often seek Chapter 11 bankruptcy procedures to get their affairs in order and pay off their obligations.
Furthermore, some people apply for Chapter 11 bankruptcy when they are ineligible for Chapter 13 bankruptcy or have a considerable quantity of non-exempt property (like several homes). However, as compared to Chapter 13, Chapter 11 may be significantly more costly and time-consuming.
Bankruptcy 101, Chapter 12
Chapter 12 bankruptcy is similar to Chapter 13 bankruptcy in many ways, except that it is only accessible to those who have obligations from a family farm or fishing company.
If you are unsure what is best for you, consult with a bankruptcy attorney for advice on your specific case.