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Bankruptcy

Types of Bankruptcy

Many people think there is only one type of bankruptcy, but actually, there are five types or chapters of bankruptcy. The four most common are chapter 7, 11, 12 and 13. The fifth, chapter 9 is only used by government entities like a city, town or municipal utility filing for reorganization. By far the most common bankruptcy proceeding filed by an individual, married couple or business is chapter 7. The second most common is chapter 13. The third, chapter 11 and lastly chapter 12. The chapters are explained more thoroughly below.

Chapter 7 Bankruptcy

Chapter 7 is the most popular form of bankruptcy. It is a liquidation proceeding in which the bankruptcy court is asked to eliminate the debts owed. This gives the debtor (the individual or individuals filing for bankruptcy) a “fresh start.” However, certain debts, such as student loans, court-ordered tickets, fines and restitution, alimony and child support, cannot be eliminated or discharge, except in limited circumstances.

In a Chapter 7 bankruptcy case most assets are exempt. Generally people get to keep all of their assets. However, nonexempt assets are liquidated and distributed to creditors. The debtor then receives a bankruptcy discharge in about ninety days after filing bankruptcy.

Chapter 13 Bankruptcy

Instead of paying creditors out of the debtor’s assets, a Chapter 13 bankruptcy provides a repayment plan for the debtors to pay back creditors. It is available to individuals with regular income. In a Chapter 13 bankruptcy, debtors keep their assets and pay back creditors out of future earnings over the life of the payment plan (3-5 years). However, the Chapter 13 debtor can also choose to make some payment out of their current assets. At the completion of the payment plan, the debtor receives a discharge. With certain exceptions, the discharge that the Chapter 13 debtor receives is similar to the discharge that the Chapter 7 debtor receives.

Chapter 11 Bankruptcy

By and large, chapter 11 is a type of bankruptcy reserved for large corporate reorganizations. Chapter 11 shares many of the qualities of a chapter 13, but tends to involve much more complexity on a much larger scale.

However, chapter 11 does not usually pertain to individuals whose debts are primarily consumer debts.

Chapter 12 Bankruptcy

Chapter 12 of the Bankruptcy Code was enacted by Congress in 1986, specifically to meet the needs of financially distressed family farmers. The primary purpose of this legislation was to give family farmers facing bankruptcy a chance to reorganize their debts and keep their farms.

We Can Help

If you have questions about which chapter of bankruptcy would be best for your circumstances we can help. I offer a free consultation and am happy to sit down with you and answer all your questions and address all your concerns. I’ve been doing this for over 20 years and will make the consultation comfortable and easy while giving you the information you need to make an informed decision on your future. Call (509)921-9500 to schedule an appointment today.

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MichelleSpokane, WA

The best part of the experience with Rob Hahn was the reassurance that things will work out and that we could ask any question without feeling judged. Thank you to all the staff for making the bankruptcy process a little less stressful. We truly appreciate all the guidance and care.