Bankruptcy is a court process wherein the court steps in to help individuals, married couples, and companies in settling the debts of the person applying for bankruptcy. The judge and a trustee assigned by the court will decide whether the person filing for bankruptcy has fulfilled the requirements and approve the petition. People and business entities usually file for bankruptcy because their income is not enough to pay for their debt. Filing for bankruptcy allows them to get a fresh start in their life and/or reorganize their assets and debts to be on a better financial situation.
However, it is worth remembering that you should consult with a lawyer on which chapter of bankruptcy is more suited for your needs and wants. Since you probably do not have the financial capacity to pay for a lawyer, you can get a free consultation from the American Bar Association, just check with their website. The cost of a bankruptcy can quickly become unmanageable if you aren’t careful. If you are interested in filing for a bankruptcy, here are the basics of what you need to know on the different chapters of the US bankruptcy code.
- Chapter 7 – When someone files for bankruptcy, the first thing that goes through a person’s mind is that the debtor will have all his things sold to pay the creditors. This is technically what happens in a chapter 7 bankruptcies. There is no need to make any payment plans. The court trustee will evaluate your assets and sold off everything that is considered “nonexempt” to pay off your debts. If you don’t have any valuable properties, then your debts will be settled by the court. No more debts.
- Chapter 9 – This type of bankruptcy is rare and often complicated as it involves cities, townships, counties and even school districts to file for bankruptcy.
- Chapter 11 – This bankruptcy chapter is often what companies which has accumulated a lot of debt but doesn’t want to lose the company file for. The aim of this process is to reorganize the company and slowly repay the debts accumulated. Individuals can also file for this type of bankruptcy if you cannot qualify for the chapter 13 bankruptcies. However, this type of bankruptcy lasts long, it is very expensive and must need a lawyer.
- Chapter 12 – Chapter 12 bankruptcy process is similar to chapter 13 bankruptcies. However, it is mostly used by farm and/or fisheries operators since part of the requirement to qualify is that the at least 80% of the debt must be accumulated from running a farm or a fisheries.
- Chapter 13 – In chapter 13 bankruptcies, also known as a wage earner’s bankruptcy, the debtor settles his debts by proposing a repayment plan to the court. However, chapter 13 bankruptcy is not for everyone. It only accommodates people with a stable earning and the debts you have accumulated must also be within the limits set by the court.
Going through the process of filing for bankruptcy is not something that you just decide on one day when you wake up in the morning. It takes careful planning and getting the requirements and documents necessary when filing for bankruptcy.