The bankruptcy code is divided into individual chapters that cater for different circumstances of dealing with debt and bankruptcy. There are also different interpretations of these chapters for the individual or business. This article will list the various chapters and how they apply to the individual and for corporations.
For individuals there are three types of bankruptcies including Chapter 7, Chapter 11 and Chapter 13.
The most common bankruptcy for individuals is Chapter 7. It is often termed the straight bankruptcy or liquidation because it discharges the debt by liquidating the assets of the debtor (some assets like the home are exempt in individuals). Under new revisions in 2005 this chapter requires that the individual must qualify before filing. By qualification, they must earn an annual income that is below the state average. This was done to protect the financial institutions and the government that had secured much of the debt in the case of student loans.
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In Chapter 7 bankruptcy, all debts, including secured and unsecured can be discharged. However, some assets owned by the individual may be confiscated and sold by the court in order to satisfy a portion of the secured debt. Of the types, Chapter 7 offers the most financial relief for the creditor.
Chapter 13 bankruptcy is the second most common form of bankruptcy for individuals. This is known as the reorganization. In this case the court appoints a trustee who will work out a repayment plan that is acceptable to the creditors and workable for the debtor. By workable, it should be a monthly repayment schedule that leaves the person with enough money for everyday living expenses like accommodation, food and other such things. The debtor is given a maximum of 5 years to complete these payments.
Corporations can file for Chapter 7 bankruptcy. This generally involves ceasing trading and selling off of all assets. Businesses can use a Chapter 11 to reorganize their debts until they are paid off or renegotiate the debt. This allows them to stay in business and possibly rectify their financial or organizational problems. An initial consultation with an attorney will help determine which of the types the individual qualifies to file. they will have to file for Chapter 13 bankruptcy.
It is important to engage a lawyer when considering potential bankruptcy. The lawyer can advise which chapter to file for based on your circumstances. They will also fill in all paper work and present it at the hearing.
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