Types Of Bankruptcy

Bankruptcy is the legal process of a business or an individual publicly declaring that their businesses or personal assets and income are not capable of paying off debts owed. In many cases, individuals prefer to take this step as a measure of stopping excessive accumulation of debts. There are different types of bankruptcy that should be thoroughly understood before making a decision.

However, there are some instances in which the owed parties can force a business to file bankruptcy as a last resolution to at least redeem a portion of the lost property. However, this is rare since in many cases the owed party will get only a small portion of their property especially if the default party has little assets remaining.

Voluntary filing of bankruptcy is the most common. Involuntary declaration of bankruptcy is only used when the default party is not capable of paying off its debts and yet it holds substantial amount of assets. The owed party can seek legal assistance to compel the debtor to declare bankruptcy so that the property can be liquidated and some debts or all are repaid.

There are different types of bankruptcy that can be sought depending on different factors. Common factors that affect the kinds of bankruptcy debts include local regulation, amount of assets held by the debtors and the situation in which the debts have been incurred. The following is a comprehensive list of the kinds of bankruptcy applicable in US.

Chapter 7 Bankruptcy

This is the most popular type of bankruptcy that can be filed. The code is also referred to as straight bankruptcy since it has no complexities. It involves the primary liquidation of a business or assets of an individual. This code is also the most severe since any non-exempt property has to be liquidated. Note that this code only affects people who are directly concerned with the debts owed. If your spouse did not sign in anywhere when you were taking the debt, then there will be no debt to be signed off. Defaults are supposed to sign off all the assets held while filing this bankruptcy. The liquidated property is sold off and the redeemed cash used in paying off most of the unsecured debts.

This code is considered as a termination of debts, but it is not necessarily the case since there are some debts that are left standing such as federal student loans, mortgages and auto loans. However, in case of default, homes can be foreclosed.

Student loans are only cancelled under very special circumstances. There should be adequate evidence to prove that even after restructuring of debts, you will still undergo excessive strain.

Chapter 9 Bankruptcy

This is a legal financial proceeding providing municipals under financial distress with protection against its creditors. A financial plan is determined to help the state resolve the outstanding debt conveniently. The municipalities can include school districts, cities, and townships.

The aim of this code is to come up with a reasonable plan of repaying the standing credit and reducing the rate at which the cash is piling up. The plan can also include extension of the repayment period as well as include refinancing plan. The courts have no power of compelling states to liquidate whatsoever.

Chapter 11 Bankruptcy

It is also called reorganization or rehabilitation bankruptcy. The code allows the business to liquidate some of its functions and assets but it continues its operation without disturbance from its creditors. This code is sought when the value of the business is greater than the amount owed.

Chapter 12 Bankruptcy

It is a special kind of financial plan available to farmers as a result of unpredictable and uncontrollable disasters. It is offered mostly to fishermen and farmers. The fishermen may have had low catch and farmers may have lost harvest as a result of bad weather, pest destruction, and such related disasters.

Chapter 13 Bankruptcy

It is a financial plan offered to persons with a steady amount of income. A plan is scheduled for creditors to be receiving a fixed amount of cash as decided by the court. This amount is intended not to strain the debtors financially, while at the sametime, helping them overcome their financial problems.

Chapter 15 Bankruptcy

This is also called ancillary bankruptcy, and it is used by foreign investors who cannot pay debts owed to the issuing countries. It can only be offered at international levels and hence local investors are exempted.

Any type of bankruptcy should not be taken lightly. An individual or business considering this option, must research and learn as much as they can to understand the pros and cons before making their final decision.