When it comes to bankruptcy there is more than one type that you can file for. Bankruptcies are a federal court process and are sometimes referred to as liquidations or reorganizations.
The law makes four different types of bankruptcies available to its citizens. All of them are classified as numbers. There is the chapter 7 bankruptcy, the chapter 11, the chapter 12 and the chapter 13. Of these, the majority of people file for either a chapter 7 or chapter 13. Let us take a look at each one of these.
Chapter 7 Bankruptcy
A chapter 7 bankruptcy is often thought of as being a straight bankruptcy or liquidation. If you own property that is not exempt from bankruptcy according to your state’s laws then it must be taken from your possession (liquidated) and sold. The money earned from the sale is then paid to your creditors.
Individuals can file for a chapter 7 bankruptcy. This is known as a consumer chapter 7 bankruptcy. Businesses also have this option as well. Both a consumer as well as a business chapter 7 bankruptcy last anywhere from three to six months. If you wish to keep your property such as your house and your vehicle then a chapter 7 bankruptcy is not the best choice for you.
Chapter 13 Bankruptcy
Sometimes referred to as debt adjustment, a chapter 13 bankruptcy is such that the debtor must come up with a plan to pay back all (or the majority of) their debts over a period of three to five years. This is done by way of monthly payments to creditors.
This is one of the most favored methods when it comes to bankruptcy as the debtor does not have to give up any of his or her property. It is important to note that to file for chapter 13 bankruptcy you must have a reliable form of income that will enable you to honor the repayment plan that is set up.
Chapter 11 Bankruptcy
Also known as reorganization, a chapter 11 bankruptcy is most often undertaken by businesses (and occasionally individuals) who are struggling financially. This type of bankruptcy is expensive and involves a considerable time commitment. It is sought out by those whose debts are more than what is permitted for a chapter 13 bankruptcy or who are in possession of a number of non-exempt assets, such as real estate for example. If you are considering this form of bankruptcy, then you should consult with a lawyer right away.
Chapter 12 Bankruptcy
Chapter 12 bankruptcy is very similar to chapter 13 bankruptcy but it is for family farmers who have found themselves in financial trouble. In order to be eligible for this form of bankruptcy, approximately 80 percent of your debts must have arisen because of your farm. Due to the large debts that often come with owning and operating a family farm, the debtor is given more power with this type of bankruptcy to get rid of such things as liens on his or her property.
The chapter 12 bankruptcy is not used very often. However if you run a farm and are having money concerns then you should speak to a lawyer in order to decide if this form of bankruptcy is right for you.