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 11 Bankruptcy
Chapter 11 is a type of bankruptcy reserved for individuals with considerable assets, debts, or complex financial structures and/or businesses like corporations or limited liability companies that seek to reorganize, restructure debts or liquidate assets. Chapter 11 shares many of the same qualities of chapter 13, but tends to involve much more complexity on a much larger scale.
These types of bankruptcy offer many tools to keep businesses open and in possession of assets and business operations until they can return to a profitable status. To learn more about chapter 11 bankruptcies, visit our Chapter 11 page. The new subchapter V of Chapter 11, which was passed into law in April 2019, offers individuals and businesses a streamlined and more cost effective way to reorganize, restructure assets and debts under Subchapter V.
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.
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.
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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