What are the types of Bankruptcy?
The types of bankruptcy are more commonly referred to as chapters of bankruptcy.
Bankruptcy generally falls into two categories. The first one
involves the liquidation of unsecured debt. The second one
is called debt adjustment and involves repayment of the debt
according to a plan that the debtor can handle. Each type of
bankruptcy can be applied to either an individual or a business
entity. The nature and scope of the assets involved will determine
the specific types of bankruptcy filings required.
The most commonly known types of bankruptcy are Chapter 7 and
Chapter 13. Chapter 7 is an elimination of unsecured debt, and
Chapter 13 is a debt adjustment where the debtor submits a
repayment plan and is allowed to retain ownership of property
as well as continuing operation of a business if applicable.
Lesser known types of bankruptcy are Chapters 9, 11, 12, and 15.
What follows will be a brief explanation of each type of bankruptcy.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is the most commonly known bankruptcy
filing simply because it applies to most individuals and many
smaller businesses. It is an unsecured debt elimination, such
as for credit card debt, consumer debt, medical bills, and some
types of liens. It will also put a stop to harassment by
creditors. Chapter 7 does not stop debt obligations relating to
taxes, student loans, child or spouse support. Recent legislation
requires a person to submit a means test to determine their
eligibility for filing bankruptcy. Some property may also have
to be sold to pay off creditors, but items such as an automobile,
furniture, and clothing are exempt. More than one bankruptcy cannot
be filed within an eight year period, and a Chapter 7 bankruptcy
stays on a credit record for 10 years.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also for individuals and smaller business
entities who have a regular income source and are still able to
pay on their debt. The main advantage afforded by this type of
bankruptcy filing is that the debtor can pay back their debt in
a more affordable manner. This means that their debt can be reduced
to a value equal to or less than property securing a debt, or
for unsecured debt, an amount less than what is owed, but what
the debtor is able to pay. The debtor is allowed to retain property,
continue operating a business, and in the case of a foreclosure are
able to put a stop to it. Chapter 13 is basically a form of debt
consolidation, and stays on a credit record for 7 years.
Chapter 9 Bankruptcy
This form of bankruptcy, known as Chapter 9 is designed for cities
or municipalities, including counties, school districts, taxing
districts, and municipal utilities. Sometimes one of these entities
will need to file for bankruptcy to restructure or eliminate debts.
In the 60 plus years since Congress has enacted laws for municipal
debt resolution, there have been less than 500 filings. Chapter 9
cases are very rare, but can sometimes involve large sums of money.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is commonly used by larger corporations for
reorganization of their finances. The rules involved are more complex
than Chapter 7 or 13 and have higher debt ceilings as well. Companies
who file Chapter 11 are allowed to keep their assets and maintain
the operation of their business while they work to become financially
stable again.
Chapter 12 Bankruptcy
Chapter 12 bankruptcy was created for farmers and fishermen with
regular family income. It is similar to Chapter 13 but has higher
debt limits to accommodate farming or fishing operations.
Chapter 15 Bankruptcy
Also known as a Jurisdictional Bankruptcy, Chapter 15 is designed
for cross border bankruptcy cases. It allows for the cooperation
between foreign courts, U.S. courts, and international creditors
and debtors.
Out of the 6 types of bankruptcies defined by United States Code,
title 11, the most common ones are Chapters 7 and 13. Most individuals
and small businesses will opt for one of these different types of
bankruptcy. Any person considering bankruptcy should always consult
a qualified bankruptcy attorney in Harrisburg, PA to determine if such a measure is the best course of action, and if so, which type of filing is most
appropriate.
What is Bankruptcy?
Many people find themselves in financial hardships at some time
in their lives. It may be due to high consumer debt, no income
from unemployment or health issues, high medical bills, or bad
investments. Sometimes, bankruptcy is the only solution to
getting out of debt and there is more than one type of bankruptcy
available depending on the situation. This article will provide
a brief overview of what bankruptcy is and who can file what
types.
If you’re looking for help with this overwhelming time in your life, try contacting a bankruptcy attorney in Harrisburg. A bankruptcy attorney can guide you through the process and provide you with peace of mind until the filings are completed and executed. You can get your life back on track.
Depending on your income and ability to pay, bankruptcy will either
take the form of unsecured debt liquidation (Chapter 7) or
repayment at a rate the individual or business can afford.
The latter is known as debt adjustment and is called Chapter 13
bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy provides a person or business with no means
of repayment, the opportunity to completely liquidate unsecured
debt such as credit cards and medical bills. Certain types of
liens can be stopped, as well as harassment from creditors and
debt collectors. This process can take from 3 to 6 months.
Chapter 7 bankruptcy does not provide for repayment of secured
debt, most tax debt, student loans, child or spouse support. Some
property may have to be liquidated to pay down the debt, but
items such as clothing, furniture, and a car are exempt. A
Chapter 7 bankruptcy will stay on your credit record for 10 years.
In order to file a Chapter 7 Bankruptcy, a person must earn below
a certain income threshold and pass a means test. Also, if you
have filed a bankruptcy within the last 8 years, you will be
ineligible to file again during that time frame. New legal reforms
have also included a requirement to complete credit counseling
from a government approved credit counseling agency before you
can file. The judge looks at other criteria as well, such as
defrauding creditors, violating a court order, a previously
dismissed bankruptcy case in the last 180 days.
Chapter 13 Bankruptcy
When it is determined that an individual or business is able to
make payments on their debt, a Chapter 13 bankruptcy is used.
Advantages of this type of filing are stopping a mortgage
foreclosure, keeping nonexempt property, and reducing or
“cramming down” secured debts to the replacement value of the
property that secures them. In the latter case, there are
instances when you can’t “cram down” a debt if it was incurred
within a specified time frame of filing the bankruptcy.
Chapter 13 bankruptcy stays on a credit record for 7 years.
In a Chapter 13 bankruptcy, debt is classified in 3 ways.
1. Priority debts – must be repaid in full. These
include child support, and some taxes.
2. Secured debts – must be paid to at least the value of the
property or collateral securing the debt.
3. Unsecured debts – must be paid at some value less than
what is owed depending on the debtors ability to pay.
Other types of bankruptcy
Other types of bankruptcy exist, such as Chapter 11 and
Chapter 12. These are less common and generally do not apply
to most people.
Chapter 11 is for business who are struggling financially and
need to reorganize their business. This is for debt limits
higher than Chapter 13, and is more expensive to implement.
Businesses that use Chapter 11 will generally have more
nonexempt assets.
Chapter 12 the same as Chapter 13 except it is intended for
farmers. In Chapter 12 bankruptcy, at least 80% of the debt
must be resulting from the operation of a family farm. Higher
debt limits are allowed to accommodate farm operating costs
and certain types of liens can be eliminated.
If you are looking at the possibility of filing bankruptcy,
it is advised to consult a qualified bankruptcy attorney.
With many recent changes in the law, that is the best way
to keep current with eligibility requirements as well as
discovering if bankruptcy is the right choice or another
alternative would be better.
Bankruptcy Information in Harrisburg PA 