Types of bankruptcy
Chapter 7 bankruptcy is a type of bankruptcy that applies to individuals and companies. Under Chapter 7 bankruptcy, just about all debt (with a few exceptions) may be discharged. There are stringent income and income-to-debt ratios that must be met in order to qualify for bankruptcy under the Chapter 7 regulations. Although Chapter 7 is the most difficult type of bankruptcy to qualify for, it is also the most beneficial for most people. Under chapter 7 personal bankruptcy, a court representative takes control of all assets (except for some that are exempt), liquidates them, and divvies up the proceeds among the creditors. If you can prove that you will be able to pay your mortgage and/or your car loan once the other debts are dismissed, you may be able to keep those.
Chapter 12 bankruptcy is the type of bankruptcy that applies to family farmers. Under Chapter 12, family farmers can reorganize their debt and continue to operate their farms and keep their land.
Chapter 13 bankruptcy is the type of bankruptcy that is available to both corporations and individuals. Similar to Chapter 12, Chapter 13 bankruptcy laws do not generally offer the outright discharge of any debts. Instead, the court appoints a trustee or representative to assist with the process of reorganizing an individual’s or company’s debt. Together with professional representation and possibly court assistance, the debtor attempts to come up with a plan to repay his or her debts. Once a plan is formulated and all creditors agree with the terms, the court sets up a system whereby the debtor makes scheduled payments to a court-appointed trustee. The trustee than pays the creditors on behalf of the debtor.
With the recent changes in the federal bankruptcy regulations, it is much more difficult to file under Chapter 7, which was the purpose of the new regulations. If you are considering bankruptcy, you should consult a qualified, experienced attorney or other credit professional.