6 Types of Bankruptcies, Which One Is For You?
Under federal law, there are six different types of bankruptcies all of which are described under the United States Code Title 11.
Each type of bankruptcy has different laws and requirements that must be met in order to file for that particular type of bankruptcy.
The name of each bankruptcy corresponds to the chapter in which the regulations are held. Before deciding to file for bankruptcy, it is important to understand which type may be right for you.
Chapter 7
Chapter 7 bankruptcy is also known as a liquidation bankruptcy. A trustee appointed by the court cancels many of your debts and, in some cases, may be able to eliminate all of them.
Chapter 7 bankruptcy takes between four and six months to complete and normally only requires one visit to the courthouse.
Once you file Chapter 7 bankruptcy, you place all your assets and debts in the hands of the court. A few weeks after you have filed the bankruptcy documents, a creditor’s meeting is held where the trustee will ask questions of you and any creditors who appear.
Once the trustee determines you have no property of value to sell or that is not exempt from seizure, they discharge your debts.
Chapter 9
Financially distressed municipalities are able to file Chapter 9 bankruptcy in order to protect themselves from creditors.
The municipality creates a plan in order to repay creditors any outstanding debt. A municipality cannot liquidate their assets so bankruptcy offers them a method for repaying debts to creditors.
Chapter 11
Chapter 11 is designed for corporations who are suffering from financial distress.
Although most Chapter 11 cases are filed by the debtor, there are occasions when a group of creditors bands together and files an involuntary Chapter 11 petition against a company that has defaulted on loans.
A trustee is not always appointed in a Chapter 11 case and the debtor continues to operate their business. However, if the court suspects fraud, dishonesty, incompetence or gross mismanagement, they may appoint a trustee to oversee the company during the proceedings.
The court takes over all major decisions such as the sale of assets, lease agreements, mortgages, closing the business or entering into a modifying contract.
The debtor has the exclusive right for four months after filing Chapter 11 to propose a reorganization plan, giving them the opportunity to restructure their financial situation. This may include downsizing the operation, although it could lead to liquidation of all assets.
Chapter 12
Chapter 12 of the U.S. Bankruptcy Code is designed for family farmers or fishermen who may be suffering from financial distress.
Debtors propose a repayment plan, making installments to creditors over a period of between three and five years. The debtor must have a regular annual income and they must be engaged in either a farming or commercial fishing operation.
Total debts may not exceed $3,237,000 for farming operations or $1,500,000 for a commercial fishing operation. Farmers must have fixed debts of at least 50 percent while family fishermen must have fixed debts of at least 80 percent that are directly related to the operation. More than 50 percent of the gross income must have come from the farming or fishing operation in the preceding tax year.
Chapter 13
In Chapter 13 bankruptcy, the debtor is able to keep all property, but they must pay back all or a portion of their debts over a three to five year period. Chapter 13, also known as a reorganization bankruptcy, requires a debtor to use a portion of their income toward repaying debt. Secured debts cannot be more than $1,149,525 and unsecured debts no more than $383,175. Some debts must be paid in full including child support, alimony, wages owed to employees and certain tax obligations. Debtors must also pay regular payments on car loans or mortgages as well as any amount they are behind in those debts. After repaying these debts, the trustee determines how much of the debtors remaining income is used toward repaying debts.
Chapter 15
Chapter 15 makes legal proceedings related to an international company that is insolvent more predictable and fair for debtors and creditors. The law is adopted from the United Nations Commission on International Trade Law’s Model Law on International Commercial Arbitration. This law reduces the risk for creditors as well as stakeholders who invest in international companies.
Which one is right for you?
For many types of bankruptcies, credit counseling is required as part of the process. If you are facing significant debt and want to get a fresh financial start, contact Georgette Miller today to learn more about which bankruptcy may be right for you.