bankruptcy types Bankruptcy Types

The following are the 3 most common bankruptcy types :

Chapter 7

Chapter 7 is the most common type of bankruptcy filings. It is basically the liquidation proceeding in which a debtor’s non-exempt assets, if any, are sold by a bankruptcy trustee and the proceeds are distributed to creditors according to the priorities among creditors established in the bankruptcy Code.

Chapter 7 is available to individuals, married couples, corporations and partnerships. Individual debtors normally get a discharge within 4-6 months of filing.

If there are assets which are not exempt, the trustee takes control of those assets, sells them and pays creditors until the proceeds from the sale are exhausted. Any wages the debtor earns, after the case is begun, belong to the debtor. Creditors are not entitled to those proceeds.

Chapter 11

Chapter 11 is the reorganization proceeding. Chapter 11 is typically for corporations or partnerships. Individuals including those whose debts exceed the limits of Chapter 13, may file Chapter 11.

In Chapter 11, the debtor normally remains in possession of assets and continues to operate business as usual, subject to the oversight of the court and the creditors committee.

The debtor proposes a reorganization plan that, upon acceptance by a majority of creditors, is confirmed by the court and binds both the debtor and creditors to its terms of repayment. Plans may call for repayment out of future profits, sales of some or all of the assets, or a merger or recapitalization. This is one of the bankruptcy types that is most difficult for debtors because it requires the entrepreneur to cede control to the court and creditors.

Chapter 13

Chapter 13 is a repayment plan for individuals with regular income and unsecured debt less than $336,900 and secured debt less than $1,010,650. The debtor keeps property and makes scheduled payments to the Chapter 13 trustee out of future income to pay creditors over time (3-5 years). Repayment in Chapter 13 can range from 10% to 100% depending on the debtor’s income and the nature of the debt. Certain debts that cannot be discharged in Chapter 7 can be discharged in Chapter 13. Chapter 13 may be used to prevent foreclosures and repossessions, while allowing debtors to get current on their secured debts.

Avoiding Bankruptcy:

Obviously, none of the bankruptcy types sound appealing to a debtor who has worked hard and done their best to preserve what they have. A Debt Consolidation program may be able to help reduce your debt faster and lower your payments so that you can avoid Bankruptcy.

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