We see it on TV, in the newspaper, and sometimes it happens to family and friends, but what does it really mean to file for bankruptcy? First of all, there isn’t just one type of bankruptcy that you can file for. In fact, there are six different types that apply to various different situations, though only chapters 7, 11, 12, and 13 apply to the general public. Chapters 9 and 15 apply to municipalities and specific state jurisdictions. These four different kinds of bankruptcy were designed by the government to help people get out of debt. Some chapters, such as 7 and 13, may be applied for by almost anyone, while other chapters, such as 12, are more specific as they only apply to farmers and fishermen.

Chapter 7

When you hear a person say they are filing for bankruptcy, they almost always mean that they are filing for Chapter 7 bankruptcy. This is what is known as a liquidation bankruptcy. To break this down even more, this would mean that the trustee sells all of the non-exempt assets that are held by the person in debt, a.k.a. the debtor, in order to repay as much of the debt as possible. The debt that is not repaid from this liquidation of possessions is discharged. Individual people, as well as corporations and partnerships, are eligible for Chapter 7 bankruptcy. Though Chapter 7 is usually not the best option for businesses, as all operations stop and the business is officially closed.

Chapter 11

Chapter 11 is the most common company based bankruptcy that businesses file for. Unlike Chapter 7 bankruptcy Chapter 11 allows for businesses to continue functioning and all assets are kept by the owners. Chapter 11 also allows for the debtor to file a reorganization plan to pay off the debt. Due to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 all businesses that file for Chapter 11 bankruptcy debtors are imposed with 120 day time limit to come up with a reorganization plan. If this is not done within the time limit, the creditors are able to submit their own reorganization plan.

Chapter 12

Chapter 12 bankruptcy is a very specific type of bankruptcy as it only pertains to farmers and fishermen and their families. This chapter of bankruptcy was added in 1986 as there was no provision applicable specifically for farmers or fishermen. This chapter has higher debt ceilings and more advantageous exemptions than those of Chapter 11 or 13.

Chapter 13

Chapter 13 is similar to Chapter 11 but is specifically for individuals who wish to repay their debt. This means that the debtor remains in control of their assets and is able to afford a reorganization plan. This is also the only option for people who wish to keep assets that are non-exempt. Chapter 13 is also for farmers and fishermen who don’t qualify for Chapter 12. One disadvantage of filing Chapter 13 bankruptcy is that a record of this is kept on an individual’s credit report for 10 years. This may discourage some creditors from lending to an individual who has declared bankruptcy.

Author Bio: If you\’re in need of information about bankruptcy, visit BankruptcyLaw.org where you can find additional information on the bankruptcy process and types of bankruptcy.

Category: Finances
Keywords: bankruptcy laws, chapter 13 bankruptcy explained, bankruptcy information, bankruptcy