Which Bankruptcy is Right for You?

If you are deep in debt, bankruptcy might be an option for you. If you are considering filing for bankruptcy, you need to decide which type of bankruptcy would be the best choice for you. Here are a few things to consider about the different types of bankruptcy that are available.

Chapter 7 Bankruptcy

One of the most common types of bankruptcies is Chapter 7. This type of bankruptcy is also known as liquidation bankruptcy. With Chapter 7, you will essentially be able to eliminate the vast majority of your debt. When you file for Chapter 7, you will have to provide the court with information about all of your debts as well as your income. They will want to know about all of your individual assets as well.

A bankruptcy trustee will be in charge of determining what assets could be sold. You will have to attend a meeting with the trustee and a representative from all of your creditors. In this meeting, the trustee will try to determine if you are hiding in the assets that could be used to repay debt. The trustee will be in charge of seizing your assets and liquidating them. This type of bankruptcy has a feature known as the automatic stay. When this is granted, creditors can no longer attempt to collect debts against you. Once this process is completed, your slate will be wiped clean and you are given a fresh start.

Chapter 11 Bankruptcy

Originally, Chapter 11 bankruptcy was reserved for corporations. However, in recent years it has also become available for individuals. This type of bankruptcy is also referred to as a reorganization bankruptcy. When you file for this type of bankruptcy as a business, you will in most cases still be able to conduct business. The court will oversee the process of reorganizing your debts and help you get back on track. You may be able to cancel or alter existing contracts with other companies. In most cases, you will be able to work as your own trustee for this process.

Chapter 12 Bankruptcy

This type of bankruptcy is reserved for family farmers. In order to qualify for Chapter 12, you must be a family farmer and you must have a regular income. You also must have less than $1,500,000 in debt to qualify as well. In order to be considered a farmer, you must have earned at least half of your income in the previous year from farming endeavors.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a type of bankruptcy that is available to all individuals. If you do not qualify for Chapter 7, Chapter 13 is a common alternative. With this type of bankruptcy, you need to have less than $1,010,650 in secured debt and less than $336,900 in unsecured debt. With this type of bankruptcy, you will submit a repayment plan to the court and it will then be overseen by a bankruptcy trustee.



Can I wipe out my credit card debt by declaring bankruptcy?



You cannot wipe out credit card debt without any consequences, even if you declare bankruptcy. When you qualify for bankruptcy, a judge will determine whether you must liquidate assets or reschedule your debts. You will have to repay the money you owe if you do not qualify for liquidation. When complete liquidation occurs, a judge will determine which debts will be cancelled and which must be paid off. Typically, you will have to pay at least a portion of your credit card debts by selling off an asset, but a judge may cancel interest, fees or a portion of your expenses. 



What types of bankruptcy are there?



There are different types of bankruptcy for individuals and corporations, and there are different levels of bankruptcy in each scenario. 

  • Chapter 7 liquidation allows businesses and individuals to cancel all debts through a process of selling assets. A judge determines which debts take top priority and assures the debtor pays out as much as possible through the process.
  • Chapter 11 restructuring typically deals with businesses who would like to stay in business and maintain control of assets. A judge restructures debts and sets up a new payment plan to allow this to occur.
  • Chapter 13 restructuring typically pertains to individuals who would like to hold onto assets while repaying debts. 
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