With bankruptcy, millions of Americans have been able to get out of debt and get a fresh start. It is a legal tool with which people can get relief from debt and comes in different types.
Every bankruptcy type is called after a chapter in the US bankruptcy code – a federal law in charge of bankruptcy cases.
Understanding Personal bankruptcies
Personal bankruptcy is the type filed by a couple or an individual. It is called a joint bankruptcy if filed by couples, even though it is not advisable to file together.
The most common type of personal bankruptcy is chapter 7 and 13 bankruptcy. While a bankruptcy will remain on your credit score for a decade, many filers see the difference in their score as early as within two years.
Chapter 7 Bankruptcy
If you struggle with medical bills, debts from credit cards, or wage garnishment, Chapter 7 bankruptcy offers a fresh start. Eligibility, however, requires you to prove to the court that your present income cannot even take care of some portion of your debts.
Also known as liquidation bankruptcy, it requires some properties to be sold to pay some of your creditors while you get a fresh start. The bankruptcy trustees handle such sales, and only non-exempt properties can be sold. However, none of your properties will be sold if the exemption covers them.
For many cases involving chapter 7 bankruptcy, there is usually non-exemption protection on the properties on state laws. The absence of nonexempt assets makes a typical personal chapter 7 bankruptcy case last a maximum of 6 months.
Chapter 13 Bankruptcy
This is another common bankruptcy that people file, but businesses (except sole proprietors) cannot file. It is also called reorganization as it comes with a repayment plan which pays a part of the entire debt of the filer. Your secured and unsecured debt cannot exceed a limit if you want to file chapter 13 bankruptcy.
Using your living expenses and a monthly income as a budget, you create a budget and inform the bankruptcy court what you want to pay every month from the debt. The bankruptcy trustee, alongside the court, reviews the proposal. After approval, you will pay the trustee the disposable income and pay your tax yearly. Once done, all your entire loan (except student loan) will be canceled.
Chapter 13 bankruptcy is a good alternative for people whose income disqualifies them from chapter 7 bankruptcy. Also, chapter 13 comes with some benefits unavailable in chapter 7, making it appealing to some people.
Chapter 11 Bankruptcy
While couples and individuals have chapter 11 bankruptcy as an option, it is not usually counted as part of the personal bankruptcy. This is due to the excessive fees associated - court filing fee of above $1,700 and attorney fee of around $15,000.
Even though it is an option, it only makes sense for wealthy people and business owners who are not qualified for chapter 13 due to excessive debt.
Chapter 9 bankruptcy
This bankruptcy type gives towns, villages, cities, counties, municipal utilities, taxing, and school districts the ability to reorganize their financial obligation. The same way a filer under chapter 13 or 11 can have a reorganization, chapter 9 gives the filer the ability to propose a repayment plan to deal with tax debt.
Chapter 12 Bankruptcy
With chapter 12 bankruptcy, family farmers and those in charge of commercial fishing can reorganize their debt by bypassing the rigorous chapter 11 bankruptcy process.
It is similar to chapter 13 bankruptcy but comes with some provisions to deal with the uniqueness of farming and fishing operations. Completeness of chapter 12 repayment gives the filer a bankruptcy discharge.
Chapter 15 Bankruptcy
In cases when a business or an individual file for bankruptcy under the jurisdiction of a foreign country, chapter 15 bankruptcy comes to play. It presents an effective avenue to deal with cases in which cross-border issues are involved, and there needs to be cooperation between US bankruptcy courts and the foreign country.
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