A Basic Overview of Bankruptcy Types
The repaying of a person’s debt is their civic duty, regardless of the kind of debt that they owe. This rule applies to individuals as well as businesses. Of course a lot of times it is irrational to assume that debts can be paid while a person or business entity is unable to do so. The reasons for not being able to pay may differ from case to case, but all that matters is that the debt cannot be further repaid. This is why the federal government enacted several legal guidelines that aid a person or group attempting to protect themselves from their respective creditors. Bankruptcy law has actually been in existence in the United States since the 18th century, but the modern form that we know today came to fruition under The Bankruptcy Code of 1978.
One must remember that the declaration of bankruptcy is not a get out of jail free card. Declaring bankruptcy will not stop criminal prosecution or render one’s tax commitments null. It should also be noted that bankruptcy cannot be used by a person simply for the purpose of escaping their financial obligations for things such as alimony and child support payments.
The following are the five types of bankruptcies and the basic information about them.
1.
Chapter 7:
Out of the five types of bankruptcies, Chapter 7 is easily the least complicated of them all. Chapter 7 can apply to an individual, a married couple as well as business partners. The legal proceedings for this form of bankruptcy typically last for around three months. After they have concluded, the individual(s) are declared free of their past (unsecured) debts.
2.
Chapter 9:
Chapter 9 is the second kind of bankruptcy. This type most specifically applies to municipalities. These could be a public agency, political subdivision, etc. Because this kind of bankruptcy involves a number of individuals and entities, it is one of the more complicated ones to deal with for both parties involved.
3.
Chapter 11:
Chapter 11 usually deals entirely with business organizations. For this kind of debt there is no trustee assigned to the borrower (like in chapter 7). Instead, the business deals with this on their own and attempts to formulate strategies aiming to either rebuild their business, consolidate their debt, asset liquidation, mergers, and several other possible courses of action in order to gain capital.
4.
Chapter 12:
This type of bankruptcy is reserved exclusively for family fishermen and farmers. Chapter 12 bankruptcies are unique in the fact that the borrower is not required to give up any of his/her assets, but instead required to pay for their debts from future sources of income.
5.
Chapter 13:
Chapter 13 is very similar to Chapter 12 because under this chapter a person is also allowed to keep their property or assets and pay their debt from their future earnings. Additionally under Chapter 13 it is required that the person contribute at least 10% of their income to their debt(s).