Bankruptcy is a legal device for clearing debts. Bankruptcy is usually imposed by a judge, initiated by the person in debt. People file for bankruptcy for different reasons like job loss, the death of a family member, or even a divorce. According to the United States Bankruptcy Code, there are 6 different types of bankruptcy. Let’s get into them.
- Chapter 7 Bankruptcy
This is the most popular bankruptcy filed among individuals. Sometimes called liquidation or straight bankruptcy, a chapter 7 bankruptcy appoints a court official to manage the sale of valuable assets to pay the people you owe. However, it ensures that your unsecured debts are cleared. It is important to note that government loans and taxes cannot be cleared through bankruptcy.
- Chapter 13 Bankruptcy
This type of bankruptcy works best for individuals with regular income to pay a portion or all their debts. The debtor creates a repayment plan that must be approved by the court and creditors to pay in installments which will take 3 to 5 years. For all this to be possible, your debts must not exceed a certain amount. Also, you cannot file it again until after two years.
- Chapter 11 Bankruptcy
This type of bankruptcy is widespread among large businesses or celebrities. They usually create a plan to continue running the company to pay off the debt. You can file for this type of bankruptcy if there is the hope of getting your business back on track and if the amount of debt exceeds the limit allowed by a chapter 13 bankruptcy. Some individuals like real estate agents can file for a chapter 13 bankruptcy too.
- Chapter 12 Bankruptcy
This type of bankruptcy was established for farms and fisheries due to the difficulties they faced in the 1980s. So if you have an occupation that works with seasons and nature then you can file for this kind of bankruptcy. It is very similar to a chapter 13 bankruptcy but allows for a more flexible payment plan. It also helps to avoid foreclosure on their landed properties and even extend mortgage payment.
- Chapter 15 Bankruptcy
A chapter 15 bankruptcy is a new type created in 2005. This type of bankruptcy allows foreigners who have assets in the United States to access the bankruptcy courts. Chapter 15 offers a faster and more effective way of solving cross-border bankruptcy.
- Chapter 9 Bankruptcy
This type of bankruptcy is also similar to chapter 13 and chapter 11 since a repayment plan is used to fulfill debts. What differentiates chapter 9 from the two is that it is usually for municipalities. It allows interest reduction on debts and also reorganizes the debt by extending the repayment time frame.
In summary, the chapter of bankruptcy to file will be determined by whatever financial situation you find yourself in. If you feel you are in a situation where you might not be able to pay up your debts then there is no shame in filing bankruptcy to get a new fresh start.