There are four major types of bankruptcy in the United States. Each type is named for its respective chapter in the United States bankruptcy code. Which one would apply to you depends on several factors including whether or not you are individual or a business. Wikipedia defines bankruptcy as a legally declared inability or impairment of the ability of an individual or organization to pay their creditors. We will discuss the four different types and determine which best applies to you.
Chapter 7. A chapter seven bankruptcy is also called a liquidation bankruptcy. With this simply means is that the trustee cells on all nonexempt assets. Using the proceeds from those assets, the trustee and repays to the fullest extent. All creditors. Individuals, corporations and partnerships are all eligible for Chapter 7. The remainder of debt which cannot be repaid through liquidation is then discharged. Businesses generally try to avoid Chapter 7.
Chapter 11. A Chapter 11 bankruptcy is one that most bankrupting businesses file. This allows the business to still function maintain ownership of their assets and worked out a reorganization plan to pay off their creditors. The business must disclose all assets and debts to creditors. The business has 120 days in which to submit a plan on how to repay their debts. This can be a simple plan or more complex plan in which creditors are offered stock investments in business or simple closure of some of their franchises. If the business defaults on the timeframe or the payment plan, creditors can then submit their own plans.
Chapter 12. Chapter 12 bankruptcy is specifically designed for farm owners. The farm owner still owns and controls all assets and works at a repayment plan with the creditors, much like a Chapter 11.
Chapter 13. Chapter 13 bankruptcy is like a Chapter 11 only for individuals. The individual still retains control and ownership of all his assets. The individual is required to work out a three to five year repayment plan. In some cases, a portion of the debt may be discharged, but this is dependent on the income of the individual. There is also a maximum amount of debt allowed.
In all situations it is always best to try and avoid bankruptcy. You should try all solutions prior to advancing on declaring bankruptcy. It is important to keep track and properly manage your debts. When debts become too much, you must take action to prevent bankruptcy.
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