Types of Bankruptcy

Bankruptcy

Which Type of Bankruptcy is Right for Me?

Once you have made the decision to file bankruptcy, you must then decide which sort of bankruptcy is right for your circumstances. There are four forms of bankruptcies available: Chapter 7, Chapter 11, Chapter 12 and Chapter 13. Which type is the one you should file?

Chapter 7

The most common type of bankruptcy is Chapter 7. It is also known as "personal bankruptcy", but can be filed by businesses as well. In a Chapter 7 bankruptcy, most unsecured debts are "discharged" or eliminated. Creditors can no longer attempt to collect the debt from you.

Not everyone qualifies to file for Chapter 7 bankruptcy protection. In order to meet the criteria, your income for the 6 months before you file must be at or below the average income for a family the size of yours that resides in your state. If it is above that, you will be required to take a means test. A means test determines whether you have enough disposable income that you would be required to file a Chapter 13 bankruptcy instead. Learn more about Chapter 13 bankruptcies below.

You will be able to choose to reaffirm some debts if you like, like the mortgage on the house. This simply means that you choose to continue to pay this debt and keep the property. You keep the same contract with the lender as you had prior to the bankruptcy and have the same obligations and possible penalties.

If you have property that is not exempt in your state, when you file Chapter 7, you will be required to turn it over to the bankruptcy trustee to be liquidated and used towards paying your creditors. Exempt property varies from state to state so you should consult a local bankruptcy attorney to learn more about those facts. Once you have filed a Chapter 7 bankruptcy, you are not allowed to file again for eight years.

Chapter 11

Chapter 11 is an intricate form of bankruptcy that is used mainly by businesses that want to reorganize, but some individuals use it as well. Because of its complexity, it is always wise to have an attorney handle this type of bankruptcy.

Being Ready for 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.

Chapter 13

Chapter 13 is also known as a reorganization bankruptcy. The advantage of this program is that it allows you to keep some property that you may lose in a Chapter 7 bankruptcy, like a car or a house. If you choose to file a Chapter 13, you will be required to pay your creditors a certain percentage of the debt over the next five years.

Your total debt is not allowed to exceed certain limitations if you want to file a Chapter 13 bankruptcy. You must also file a repayment plan with the bankruptcy court for its approval. A bankruptcy trustee will be appointed by the court to oversee your repayments. If you cannot maintain the schedule, you could convert this bankruptcy to a Chapter 7.

Whichever form of bankruptcy you decide is right for you, it is always a wise decision to enlist the help of a knowledgeable bankruptcy attorney in your area.

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