Sometimes debts can spiral out of control. Both consumers and businesses are faced with the fact that this no way they can pay back what they owe. That’s when filing for bankruptcy becomes their only option.
Understandably, the government made provisions on different bankruptcy proceedings that a person or a group can acquire to protect themselves from creditors. This way, lawsuits that creditor are bound to file against the borrower would be avoided. They will also have a chance to protect their properties of retain possession of their assets.
However, it is important to remember that declaring bankruptcy will not prohibit criminal prosecution or cancel tax obligations. Also, a person may not use bankruptcy as a reason to excuse himself of his financial obligations for his children or alimony.
There are many different kinds of bankruptcy. Here are some basic points about some of the more common types of bankruptcy that are available to the public.
- Chapter 7. Among the 5 types of bankruptcies, this one is the most uncomplicated. An individual, a married couple or business partners can apply for this proceeding. Before filing for an application, the individual or the group will be interviewed by a representative from a Credit Counseling Agency. He will be required to make an appearance on court. It usually takes about three and a half months before the proceedings are done. Afterwards the individual will be declared free from past unsecured debts. He will then be assigned a trustee who will be in charge of identifying which of his assets will be exempted from bankruptcy. The rest of his assets will then be sold and distributed among his creditors.
- Chapter 9. This type of bankruptcy proceeding particularly deals with municipalities. Under the bankruptcy code, a municipality could be a political subdivision or a public agency. Since it involves a larger group, this type is a lot more complex than the other bankruptcies.
- Chapter 11. This type of bankruptcy proceeding generally applies for business corporations. There wouldn’t be any designated trustee for a corporation; instead the corporation itself will come up with its own reformation plans. This may include actions to try to recover the productivity of the business, debt consolidation, and repayment strategies such as selling some assets, merging, and other possible options to generate some funds.
- Chapter 12. This type of bankruptcy is exclusively for family farmers and fishermen. In this case, he will not lose any of his assets but will be required to pay of his debts out of his future earnings.
- Chapter 13. Similar with chapter 12, here an individual is allowed to retain his property and pay off his credits out of his future salary. He may allot at least 10% or more out of his income to make up for his debts. Provisions could be made on his behalf to give some assistance with his payment plans.