Types of bankruptcies

Two types of bankruptcies that are most commonly filed when you are drowning in debt are Chapter 7 and Chapter 13. Chapter 7 is the most common type of bankruptcy. It is available to both individuals and businesses. Another name for Chapter 7 bankruptcy is Straight Bankruptcy.

Any assets that can be sold to pay the lenders are known as non-exempt assets. These assets are turned over to trustee, so they can be sold. The trustee uses the proceeds of the sale of the assets to pay the creditors. Once you file for bankruptcy, creditors cannot collect money directly from you. After the assets have been sold (liquidated) and the creditors have been paid, the remaining debts are canceled and you are no longer responsible for them.

Under Chapter 7 you cannot discharge the following debts:

  • Alimony and child support
  • Drunk driving judgments and criminal fines or restitution
  • Debts incurred by fraud or intentional wrongdoing
  • Back taxes under 3 years old and student loans
  • Recent purchases involving substantial amounts
  • Properly executed contracts involving titles or liens such as land or automobiles

Under Chapter 13, your debt is reorganized into a manageable debt repayment schedule over three to five years. You will repay (reaffirm) anywhere from 10-100% of what you owe depending on your income, the nature of your debt, and how much you owe.

Under Chapter 13 you cannot discharge the following debts:

  • Alimony and child support
  • Drunk driving judgments and criminal fines
  • Student loans

Why you might want to consider Chapter 7 bankruptcy:

  • You have no hope of repaying any debts;
  • You have debts without co-signers;
  • You’re about to be sued by creditors;
  • You’ll protect your exempt property and income;
  • You don’t qualify for Chapter 13.

Why you might want to consider Chapter 13 bankruptcy:

  • You’ve already filed Chapter 7 in the past six years;
  • You have debts with cosigners;
  • You can pay your debts within three to five years;
  • Your income may disqualify you from Chapter 7;
  • You need relief from collection proceedings or you want to pay your creditors and need some breathing room;
  • You wish to leave open the option of filing a Chapter 7 bankruptcy some time in the future;
  • You’re behind on your mortgage and own back taxes You have assets that could be liquidated if you file Chapter 7;
  • You’re a farmer who has debt not related to your farming operations and don’t qualify for Chapter 12.

Other types of bankruptcies are:

  • Chapter 12 is a type of bankruptcy available for family farmers. This type works much like Chapter 13.
  •  Chapter 9 is a type of bankruptcy for municipalities.
  •  Chapter 11 is occasionally used by individuals but is primarily used by large insolvent corporations that wish to payoff their debts through  a repayment plan.

Remember to seek professional legal advice for bankruptcy filing.

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