Bankruptcy Definition: What Exactly Is It?
Bankruptcy is a generalized term for federal legal proceedings that help consumers and businesses get rid of their debts and pay off their creditors. If you can prove that you are entitled to it, the bankruptcy court will protect you during your bankruptcy proceedings. In general, bankruptcies can be classified into two types:
Of the different types of bankruptcy, Chapter 7 and Chapter 13 procedures are the most common for individuals and businesses. Chapter 7 bankruptcies normally fall under the category of liquidation, which means that your property could be sold in order to pay off your debts.
Conversely, Chapter 13 bankruptcies generally fall under the reorganization category, which means that you will likely be able to keep your assets, but you have to comply and stick to a plan that will allow you to pay off some or all of the money. all of your debts within three to five years. .
Chapter 7 Bankruptcy 101
Individuals and businesses are allowed to file for Chapter 7 bankruptcy. These procedures typically take between three and six months.
In Chapter 7 bankruptcy proceedings, some of your assets may be seized and sold to pay off all or part of your debts. This is called the “liquidation of the property”.
However, as an advantage of this type of bankruptcy proceeding, any unsecured debts (debts not guaranteed by collateral) will be written off. In addition, some types of property cannot be sold to pay off your debt, such as furniture in your home, car, and clothing.
Secured debt is treated differently from unsecured debt in Chapter 7 bankruptcy proceedings. In Chapter 7 bankruptcy proceedings, you (the debtor) must make a choice between allowing the creditor to repossess the property securing the debt. , continue to make payments on your debt to the creditor, or pay the creditor an amount equal to the replacement value of the property securing the debt. In addition, some types of secured debts can be wiped out during Chapter 7 bankruptcy proceedings.
Before you can file for Chapter 7 bankruptcy, you must be able to prove that you are eligible for Chapter 7. To be eligible for Chapter 7, you may not be earning enough money (less some monthly expenses and payments from the Chapter. debt) to be able to fund a Chapter 13 bankruptcy repayment plan. other requirements to be eligible to file for Chapter7 bankruptcy.
Chapter 7 Bankruptcy Debts Not Wiped Out
While credit card debt, unsecured loans, and other debts can be written off in Chapter 7, things like child support, taxes owed, and alimony payments cannot be cleared. For more debt that will remain after Chapter 7 bankruptcy proceedings, see Debts Remaining After a Chapter 7 Discharge.
Chapter 13 Bankruptcy 101
Also known as “employee” bankruptcy proceedings, only people with a reliable source of income are allowed to file for Chapter 13 bankruptcy.
In a Chapter 13 bankruptcy case in federal court, you should work with the court to develop a repayment plan and stick to the plan over the next three to five years. The amount you will need to pay is based on your income, the amount of your debt, and the amount the creditors of your unsecured loans would have received if you had filed a Chapter 7 application instead of Chapter 13.
To be able to file for Chapter 13 bankruptcy, you must be able to prove that your debt is below the deposit limits. If you have more than either of these amounts, you may not be able to apply for Chapter 13 bankruptcy protection.
Chapter 13 bankruptcy can allow you to pay off secured debts, even if you are in arrears, without the property that secures the debt being repossessed. You might be able to put your past due payments into your debt repayment plan and pay them off over a period of several years.
Chapter 11 Bankruptcy 101
Chapter 11 bankruptcy proceedings are normally used by troubled businesses as a way to get their affairs in order and pay off debts.
Additionally, some people also file for Chapter 11 bankruptcy when they are not eligible for Chapter 13 bankruptcy or own large amounts of non-exempt property (like multiple homes). However, Chapter 11 can be much more expensive and time consuming than Chapter 13.
Chapter 12 Bankruptcy 101
Chapter 12 bankruptcy is a lot like Chapter 13 bankruptcy, except that it is only available to people who have debts from a family farm or family fishing operation.
If you are not sure what is right for you, contact a bankruptcy lawyer to guide you on your situation.