The Federal Bankruptcy Act specifically addresses the different types of bankruptcy available to individuals and it defines them by chapter. Each is then identified by the chapter in which it is discussed. There are four main types of bankruptcy, the two most common being Chapter 7 and Chapter 13. Understanding the general basics of each of these could help you better establish whether or not the process of declaring oneself bankrupt is right for you, and if so, which Chapter will best serve your needs.
The most frequently utilized forms of bankruptcy are Chapter 7 and Chapter 13. Businesses and individuals alike can both benefit from either one of these forms of bankruptcy; however, the two are not identical and can offer different advantages and disadvantages depending on the circumstances specific to a given person or company. In Chapter 7 bankruptcy, a court-appointed trustee will be named to collect on the assets of an individual in debt. It is the responsibility of the trustee to sell the collected assets for cash and then use the proceeds to pay off the monies owed to creditors the individuals may have been indebted to. This is generally considered to be the most severe form of bankruptcy filing and it cannot be enacted again for at least six years after the first process has been officially completed.
Chapter 13, on the other hand, was designed with different intentions in mind. Unlike Chapter 7, this form of bankruptcy is aimed at debtors who can prove that they have a steady source of income. Businesses can utilize this method as well. In both case scenarios, the process is referred to as “individual reorganization” because it allows for a three to five year period in which the debtor will be provided with the opportunity to repay the money they owe. Chapter 13 allows for an indebted individual to keep their property as well. Once presented to the courts, a plan to file Chapter 13 bankruptcy will either be approved or denied at a confirmation hearing.
Two less common types of bankruptcy are Chapter 11 and Chapter 12. While Chapter 11 is targeted at large business corporations, some individuals may be eligible as well. Chapter 12, however, is more specifically geared towards alleviating the debts of farmers and fisherman. Chapter 11 bankruptcy is very similar to Chapter 13, with only a very few exceptions, the biggest being the number of requirements that must be met during the process. Chapter 11 remains a good way to pay off outstanding debts without having to re-establish creditworthiness. Instead, a plan can be created to pay off the money owed over a prolonged, predetermined amount of time. For farmers and fisherman with steady or at least seasonal income, Chapter 12 bankruptcy will allow for the repayment of all or part of the debt owed over an established amount of time. Almost always, this is a substantially less expensive way to end debt than that of Chapter 11.
Given the current state of the economy, it is not uncommon in the least for individuals to be facing overwhelming amounts of debt from which they are unable to recuperate. Even fiscally responsible individuals have found themselves in a financially compromising position as they try to rebound from monetary losses and financial declines of any degree. To address issues of this nature, several variations of the bankruptcy procedure have been established, as described in brief above. Knowing that there is a way out of debt you have found yourself in and realizing that there are more options that one available to you could substantially alleviate the stress you are currently struggling to subside. That being said, taking the first step towards filing for bankruptcy is simply learning about your options and figuring out what will work best for you. The rest will happen organically.