With the proper information in regards to the new bankruptcy laws you can avoid the hassles many people have to deal with because they did not take the time to do some research. Only you can decide what is best for your debt burden with the current bankruptcy law.
Types of Bankruptcy
You may have heard of someone filing for Chapter 11 or Chapter 7. What do they mean by this?
These are actually the types of bankruptcy, so-named after the title of the Chapter of the Federal Bankruptcy Act in which they appear. There are three common types of bankruptcy available. Here is a quick rundown of each one:
Chapter 7
This is also known as liquidation. In a Chapter 7 bankruptcy case, all the assets and nonexempt properties, if any exists, of the debtor must be turned over to a trustee for the purpose of converting them into cash to pay the debtor’s creditors.
In return, the debtor receives a Chapter 7 discharge in the form of a court order, releasing the debtor from all of his or her dischargeable debts. This order also has the effect of preventing creditors from attempting to collect these dischargeable debts from the debtor.
Note that there are some debts which cannot be discharged with a Chapter 7 bankruptcy.
Chapter 11
This type of bankruptcy is typically used for business bankruptcies and restructuring. As such, this is not an option for individual consumers. Besides being far more complex, it is also more expensive to pursue.
A Chapter 11 bankruptcy gives businesses the opportunity to reorganize themselves, restructure debt, and get out from under certain burdensome leases and contracts. “Business” here may include a corporation, sole proprietorship, or partnership.
When a corporation files for a Chapter 11 bankruptcy, the stockholders’ personal assets are not at risk. Since a corporation exists separate and apart from its owners, the stockholders, the only asset the latter stands to lose are the value of their investment in the company’s stock.
Chapter 13
This is sometimes referred to as a “mini Chapter 11” because it allows small proprietary business owners and certain qualified individuals to file for it in order to repay their creditors but still retain your property.
So how is this different from a Chapter 7 bankruptcy, which likewise allows you to retain certain exempt properties and assets? Chapter 13 is different in that it enables a debtor to retain the assets that would otherwise be liquidated by a Chapter 7 trustee.
In most cases, you can keep your home and your car under either Chapter 7 or Chapter 13. However, there are certain instances under Chapter where you would not be able to keep your rental properties, antique gun collections, etc. Whereas, if you file for a Chapter 13 bankruptcy, you may be able to keep these “luxurious items” and submit yourself to a Plan where you can make repayments.
The goal of a Chapter 7 bankruptcy is to discharge your existing debts so you can get a “fresh start” on your finances. A Chapter 13, on the other hand, obliges you to repay most or all of your debts before your slate is wiped clean. It is because of this – you repay your debts – that you gain a certain advantage over a Chapter 7.
Make no mistake that bankruptcy is a complex process. There are many intricate details involved in this legal process that should be taken into consideration before making any decisions involving bankruptcy. The information above is only basic. There are still many important questions that may arise and only your bankruptcy lawyer who knows more about your particular situation can authoritatively answer your questions.
Dean Shainin offers online Bankruptcy and debt advice. For more information, articles, current news, tools and valuable resources on bankruptcy and debt solutions, visit this site: How To File Bankruptcy
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