Bankruptcy is the term used to describe the federal court procedure that helps businesses and their customers eliminate debts and repay their creditors.
Generally, bankruptcies are categorized into either liquidations or reorganizations. The most common types of bankruptcies within those two frameworks are Chapter 7, Chapter 13, Chapter 11, and Chapter 12. Each type of bankruptcy has its own benefits depending on an individual's or a company's current state of financial affairs.
Both individuals and businesses can file for Chapter 7 bankruptcy. Chapter 7 bankruptcy is in the liquidation category. The different components of Chapter 7 bankruptcy are:
Liquidation of Property
Some of an individual's property has the potential to be seized and sold to pay off a portion or all of your debts. One of the benefits of this kind of bankruptcy is that any unsecured debts that are not guaranteed by collateral will be entirely wiped out. Also, there are particular types of property are not able to be sold to pay off debts such as furniture or clothing.
In Chapter 7 bankruptcy, secured debts are treated slightly differently. The debtor will have to choose between allowing creditors to repossess the property that secures the debt or to continue to make payments on the debt to the creditor or to pay the creditor a sum equal to the replacement property that is securing the debt.
Who Is Eligible for Chapter 7 Bankruptcy?
To be eligible for Chapter 7 bankruptcy, it is essential to show that you cannot make enough money to be able to fund a Chapter 13 bankruptcy repayment plan. The way this assessment is calculated is by subtracting certain expenses by monthly debt payments.
What Debts Will Not Be Wiped Out by Chapter 7 Bankruptcy?
Credit card debt, unsecured loans, and other debts will likely be forgiven in Chapter 7. However, child support taxes and alimony cannot be wiped out.
Chapter 13 bankruptcy is considered the type of bankruptcy that is for people who earn wages because only the individuals with a reliable source of income can file for this type of bankruptcy. Usually, a repayment plan must be determined in federal court for the next three to five years to pay off the debt. The amount that needs to be paid will be determined by the individual's income, how much debt they owe, and the amount creditors would have received if the individual had filed under Chapter 7 rather than Chapter 13.
Are There Any Limits on Debt for Chapter 13?
To be able to file for Chapter 13, you must be able to demonstrate that your debt is under the limits for filing. The threshold changes each year, and it is wise to check both the limits for secured debt and unsecured debt. Chapter 13 bankruptcy possibly will enable you to repay secured debts even if you are behind on payments without having the property that secures the debt be entirely repossessed. This payment plan puts the individual's past due payments into your debt repayment plan and pays it off over a period of years.
Chapter 11 bankruptcies are typically used by businesses that are struggling as a method of getting their financial affairs in order and paying off their debts. Also, some individuals also file for Chapter 11 bankruptcy when they are not eligible for Chapter 13 bankruptcy if they have higher debt values than the current maximum.
Chapter 12 is a unique type of bankruptcy that is for individuals that have at least 80% of their debts coming from a family farm.
Bankruptcy is a controversial method of eliminating debt that can stay on the debtor's record for up to seven years. Bankruptcies can occur for either individuals or businesses. The most common types of bankruptcy are Chapter 7 and Chapter 13. It is difficult to get financing after going through a bankruptcy, which is why it is crucial for the individual or business to assess whether it is worthwhile just to pay off their obligations or to pursue a bankruptcy proceeding.