Jul 25 2010
What is bankruptcy? What are the different forms of bankruptcy?
Bankruptcy is a court process that allows individuals and businesses the ability to remove or reduce debts while under the shelter of a federal bankruptcy court. Debtors will often file bankruptcy to help resolve insurmountable debts or allow for a full financial reorganization. In either case it should be viewed as only a last resort and will often follow individuals and businesses for decades. Below are the different types of bankruptcy.
Chapter 7 Bankruptcy – Designed as a full declaration of insolvency. This form of bankruptcy calls for the distribution of all non exempt assets. The non exempt assets will vary from state to state.
Chapter 9 Bankruptcy – Designed for municipalities such as cities, counties, and school districts to reorganize their debts and allow them to continue normal operations. In over 75 years, since the establishment of the law, there have been fewer than 500 cases of chapter 9 bankruptcy.
Chapter 11 Bankruptcy – Chapter 11 bankruptcy was created to help individuals, corporations, partnerships, and other business entities reorganize their current debts and permit them to continue normal business operations under the supervision of a bankruptcy court. Individuals seldom file chapter 11 bankruptcy but there are laws that will allow it if necessary.
Chapter 12 Bankruptcy – This bankruptcy code was specifically designed for families that engage in fishing and farming. It is a much simpler, cheaper, and more streamlined form of restructuring debts than chapter 11 and 13. Fisherman and farmers will generally have larger debts than individuals that earn a set wage making this more advantageous for these particular industries.
Chapter 13 Bankruptcy – Chapter 13 is the most frequently used bankruptcy code for individuals and allows for full repayment of debt as soon as the person filing has a more stable income. Specific rules will vary from state to state but will normally establish a payment plan from 3-5 years.
Chapter 15 Bankruptcy – Chapter 15 is a newer bankruptcy code that deals with assets abroad. It allows protection from foreign debts if an individual has filed for chapter 7 or 11 bankruptcies.
This original FAQ was inspired by: