Learning about bankruptcy helps you decide whether it is a right choice for you or not. There are many legal laws and terminologies that require an in-depth understanding. Even though it is sometimes difficult for a layman to understand them, with some help from a professional attorney who specializes in Bankruptcy, this can be achievable.
Individuals and Corporations, both file for bankruptcies. But the chapters under which they file, varies, according to the provisions of the Chapter. Bankruptcy laws are strict. But you can make them work for you.
Bankruptcy is a powerful tool that should be used correctly. It helps you eliminate your debts or repay the debts over a certain period of time with the federal court protection.
Anyone with an overwhelming debt resorts to bankruptcy as the best option to come out of mounting debts. But filing for bankruptcy should be done after careful evaluation as bankruptcy has far-reaching implications. It has to be taken as a desperate last resort, only after a thorough consultation with an experienced attorney.
Types of Bankruptcy
The title 11 of the United States Bankruptcy Code, gives the right to file for bankruptcy, providing protection from creditors to the persons/corporations filing for bankruptcy.
There are different types of bankruptcy that can be filed under various chapters, such as Chapter 7, Chapter 13, Chapter 11 and Chapter 12 Bankruptcy.
Chapter 7 Bankruptcy
This is the most common type of bankruptcy that individuals and corporations file for. This isalso called as liquidation or straight bankruptcy. Put in simple words, when a Chapter 7 bankruptcy is filed, the individual’s assets are collected by the court-appointedtrustee. The trustee then sells the assets and pays the proceeds to the creditors of the individual. However, there are certain assets that come under exemption, which cannot be liquidated.
A debtor can get rid of the bad debts very quickly by filing under this chapter. There are also no monthly repayments applicable.
The whole process of filing for bankruptcy under Chapter 7 takes about four to six months. This also involves one trip to the court and a creditcounseling with an approved agency. However, once this is finalized, a debtor cannot file for Chapter 7 bankruptcy for a period of six to eight years.
A Chapter 7 bankruptcy gives an automatic stay advantage to the debtors. This automatic stay stops creditors from harassing the debtors. Creditors also cannot possess the debtor’s car, property or cut off utility services.
Chapter 13 Bankruptcy
Also called the reorganization of debt, this type of bankruptcy can be filed only by individuals and not corporations, including limited liability companies.
Here, a debtor can keep the property but gets a time extension to repay the debts, around three to five years’ time. The Chapter 13 bankruptcy is longer.
However, there are some eligibility rules that have to be complied with, to file under Chapter 13 Bankruptcy. There are certain debts to be paid off and hence the debtor should have theincome to repay the debt. If a debtor has an irregular or low income, then it is a difficult proposition for this to be approved by the federal court.
Chapter 11 Bankruptcy
This is applicable for larger corporations. It is similar to the Chapter 13 bankruptcy, but with bigger requirements. And hence this is also a form of thereorganization plan.
Chapter 12 Bankruptcy
This is a voluntary bankruptcy that is designed for farmers and fishermen. It is fairly a new addition to the bankruptcy laws which allows them to restructure the finances and avoid liquidation.