When you’re in debt and considering bankruptcy, it’s important to realize that one size does not fit all. There are different types of bankruptcy cases available to individuals depending on the relief you’re looking to get. Your situation and, to some extent your preference, determines your solution.
Chapter 7 Bankruptcy
Chapter 7 is designed for people, married couples and businesses in financial difficulty who do not have the ability to pay their existing debts. If your debts are considered to be primarily (in other words, 50% + $0.01) consumer then you’re going to be subject to a means test designed to determine whether you’re eligible to file for Chapter 7.
Under chapter 7, you get to keep certain property and will be required to surrender other, non-exempt, property. If there is property that you cannot exempt, it will be taken by the trustee and sold for the benefit of your creditors.
The purpose of filing a Chapter 7 case is to obtain a discharge of your existing debts. Even if you get a discharge, some particular debts are not discharged under the law.
If a corporation files for bankruptcy, it is not eligible for a discharge. Rather, it will simply be liquidated.
Chapter 13 Bankruptcy
Chapter 13 is designed for individuals and married couples with regular income who would like to pay all or part of their debts in installments over a period of time. If your debts exceed certain levels, however, you cannot file for Chapter 13.
Under Chapter 13 bankruptcy, you file a repayment plan that lasts three or five years, depending upon your income and other factors. The court must approve your plan, at which point your creditors begin to get paid through the court. After completing the payments under your plan, many types of debts are discharged.
Chapter 13 bankruptcy is a useful tool for catching up on car payments, rent and mortgage arrears, and for paying debts that would not be discharged in a Chapter 7 bankruptcy.
Chapter 11 Bankruptcy
Chapter 11 is designed for the reorganization of a business but is also available to consumers and individuals who have debt levels above the limits allowed for Chapter 13 bankruptcy. Chapter 11 bankruptcy is extremely complicated and expensive.
Chapter 12 Bankruptcy
Chapter 12 is designed to allow family farmers and fishermen to repay debts over a period of time. In that way, it’s similar to chapter 13. There as some benefits to using Chapter 12 over Chapter 13, but it’s available only to those whose income arises primarily from a family-owned farm or commercial fishing operation.
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