How Forms of Bankruptcies Differ

If you’ve been thinking of joining the thousands of other people in America who are filing bankruptcy, you may find the whole process rather confusing. There are several types of bankruptcies from which to choose. Here are some of the basic differences between the most common forms of bankruptcies.

Chapter 7 Bankruptcy

Chapter 7 is the most common form of bankruptcy filed.  Businesses as well as individuals can file Chapter 7, but it is also known as “personal” bankruptcy.  When you file Chapter 7, you liquidate or discharge, most of your unsecured debts.  Your creditors are no longer allowed to make any further collection attempts.

If you want to file Chapter 7 bankruptcy, you must meet certain criteria.  The qualifications include passing a means test.  This test determines if you have enough disposable income to repay some of your debts.  If you do, you will have to file Chapter 13.  If, however, your family’s income for the last six months is below that of the median income for the same size family in your state, you would be eligible to file Chapter 7.

If you choose to file Chapter 7, you may want to reaffirm some of your debts such as your mortgage or your car loan.  When you reaffirm a debt, you continue to pay the installments and you get to keep your property.  If you choose not to reaffirm a secured loan, you will have to relinquish the property to the creditor.

There is certain property that is exempt and cannot be seized and sold to pay your creditors.  In fact, many people who file Chapter 7 bankruptcy never lose any of their property at all.  You will want to enlist the help of an experienced bankruptcy attorney to protect your assets. 

Chapter 13 Bankruptcy Information

Chapter 13 Bankruptcy

Another form of bankruptcy, known as “reorganization bankruptcy”, is Chapter 13.  This type of bankruptcy requires you to pay your creditors a set percentage of the debt over the course of the next three to five years. 

To be eligible to file for Chapter 13 bankruptcy, your debts cannot exceed a certain limit.  You must create a repayment plan and have it approved by the court. You are also required to have a steady income so you can make the required payments.  That is why this type of bankruptcy is often called the “workingman’s” bankruptcy.  If your situation worsens in the future, you could still convert this bankruptcy to a Chapter 7.

Chapter 11

This is a complex form of bankruptcy used most often by businesses that want to reorganize, though occasionally an individual will choose to file Chapter 11.  Because it is particularly complicated, it is always best if a competent attorney should always handle this form of bankruptcy.

Chapter 12

Only family farmers are allowed to file a Chapter 12 bankruptcy.  It works much the same as a Chapter 13 and allows the farmer to make payments over time toward his debts.

No matter which type of bankruptcy you feel best suits your situation, it is a good idea to consult with an experienced bankruptcy lawyer to help you avoid costly mistakes. 

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