The Different Types of Bankruptcy
Written by Dongmiao Cui   


Bankruptcy cases are filed in United States Bankruptcy Courts based on the Title 11 of the United States Code, which is also known as the bankruptcy code. There are 6 types of bankruptcy: Chapter 7, 9, 11, 12, 13 and 15. The common bankruptcy types filed by individuals are Chapter 7 and 13 bankruptcies.

Chapter 7 filing is the most common form of personal bankruptcy. It is also called the “straight bankruptcy” and governs the legal process of liquidation. Under Chapter 7 bankruptcy, some of your assets are liquidated (sold) by the interim trustee to repay creditors. However you are allowed to claim certain exempt properties. The exemption varies among states. Most liens such as real estate mortgages and security interests for car loans are NOT exempted. Child support, income taxes less than 3 years old, property taxes and student loans cannot be discharged either.

You will be eligible to file chapter 7 if your monthly income is less than or equal to the median income in your state. Chapter 7 bankruptcy stays in your credit report for 10 years since the date the bankruptcy 7 is filed.

Chapter 13 governs the debt reorganization process. You are eligible to file chapter 13 if your unsecured debts do not exceed $360,475 and secured debts do not exceed $1,081,400. You will propose a written plan to pay your creditors over 3-5 years. The plan must include detailed transactions to occur and repayments must commence within 30-45 days after the case started. You will be able to keep your property.


Chapter 7 Bankruptcy vs. Chapter 11 Bankruptcy


 Chapter 7
 Chapter 13
Limitation You must pass the Means Test that determins your eligibility for Chapter 7. If your income is higher than state median income, it is less likely that you will be approved for Chapter 7 filing. You may file Chapter 13 if your unsecured debt is less than $360,475 AND secured debt is less than $1,081,400.
Debt Discharge Most of your debt will be discharged. Part, or all of your debt will be repaid over a period of time based on a specific payment plan.
Effect on Properties Your non-exempt property will be sold by the trustee. You can have the opportunity to save your home from foreclosure.
Advantage You can start over with no debt. You can keep your home (house) by working out an affordable payment plan.

Remain shorter in your credit report (7 years, instead of the 10 years for Chapter 7).
Disadvantage Creditors will take as much property as they can to pay off the debt. Your case will be dismissed by the Court, if you miss any payment. You must abide by the court - regulated financial guidelines throughout the repayment period.
Suitable For
 People who have an overwhelming amount of debt and insufficient income. People who only have rather short-term financial problems (such as due to job loss).


Beyond the chapter 7 and chapter 13 bankruptcies that are most commonly filed, there are other types.

Chapter 9 bankruptcy is a form of reorganization and is only filed by municipalities.

Chapter 11 bankruptcy is available to both businesses and to individuals of high net worth. They are mostly filed by corporations.

Chapter 12 bankruptcy is a form of reorganization and is only available to family farmers and family fisherman.

Chapter 15 bankruptcy deals with foreign companies insolvent in U.S. debts.



 
Last Updated on Sunday, 15 April 2012 03:14