The Different Types of Bankruptcy Methods
Bankruptcy is a federal process that relieves consumers with an enormous amount of debt from paying back their creditors. The consumer may be released from their debts either completely or partially. However, a bankruptcy remains on the consumer’s credit file for about 10 years. All forms of bankruptcy must be approved by the court, and the agreements are binding upon all parties involved.
As mentioned previously, bankruptcy is a matter of federal law. If the federal bankruptcy law is in disagreement with state law, the federal bankruptcy law overrides the state law.
A Chapter 7 bankruptcy is the most common type of bankruptcy filed by many consumers. It is a liquidation arrangement, where all debts are wiped out completely. This type of bankruptcy is available to individuals, married couples, and for those in partnerships and corporations.
A Chapter 11 bankruptcy gives business owners an opportunity to reorganize their debts. In this process the creditors are either paid entirely or partially by the debtor. The reason for reorganizing debts is so that the debtor can better manage paying off the debts.
A Chapter 12 bankruptcy is a more simplified reorganization structure. This type of bankruptcy is for family farmers whose debts meet specific debt restrictions.
A Chapter 13 bankruptcy is a debt repayment plan available to individuals and married couples who have debts that fall within a specific statutory amount. Filling a Chapter 13 allows debtors to repay either some or all of their debts from their projected future income over a 3 to 5 year period.
During a bankruptcy estate, the estate is considered to be all of the equitable and lawful interests that the debtor possesses. The debtor is allowed to claim exemption for specific property; however, the remaining balance of the estate is liquidated in a Chapter 7 bankruptcy with the purpose of paying all of the administrative costs of the proceeding as well as the claims of the creditors according to their priority.