Types of Bankruptcy
If you are considering insolvency, there are numerous types of bankruptcy that you may want to look at. In addition to each type, there are many rules to follow regarding each one.
Those that neglect to follow all of the “small print” will find that their case is thrown out of court. Thus, it is important to gain the legal advice of a bankruptcy lawyer prior to filing. That said, this article will explore the various types of bankruptcy. Some of these kinds can only be used by corporations, while others are only available to individuals. Consider the various terms included in each one carefully before filing.
Chapter 7 is often considered the harshest kind of insolvency. Under Chapter 7 all debts are excused, though all assets are seized. Once the assets are seized, a court appointed trustee will sell off all properties. The money acquired from these properties will be used to pay off creditors. Any amount of debt that cannot be repaid through liquidation is forgiven. Any income gained after filing can be kept by the debtor, since this is not considered part of the deal. Both individuals and companies can file a Chapter 7 claim. Most of the time, those people that file for bankruptcy are speaking of Chapter 7.
Unlike Chapter 7, Chapter 11 can only be filed by corporations and businesses. Out of all the other types of bankruptcy, this one is the most complex. When a business files for Chapter 11, they must come up with a valid plan to pay back creditors. This plan must then be approved by the court and the court appointed trustee. Previously, companies had an unlimited amount of time to come up with this plan, though there has been a recent 120-day time limit established. If a business fails to generate a plan during this time, the creditors can then come up with their own plan. During this process, a business will remain operational.
Chapter 12 bankruptcy is reserved for farm owners only. Similar to Chapter 11, Chapter 12 states that a farmer can keep all assets while working out a payment plan. Chapter 13 is reserved for individuals that want to remain in control of assets while working on a three to five year repayment plan.
The types of bankruptcy offered all contain a large number of subcategories that should be understood prior to filing. If insolvency is your only option, be sure to hire a competent lawyer to help you out.