The 5 Different Kinds of Bankruptcy

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.

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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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.

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Elizabeth Roberts

Elizabeth Roberts

Liz Roberts and her team are continuously providing information to people who are ready to repair their credit and improve their credit score. Also NewHorizon.org team strives to empower the homebased and small business owners by bringing information that can help them to manage and grow their businesses. Let our 23+ years of business finance experience help you to get the financing you need! CONTACT US if need financing for your business.

5 Comments
  1. Hello,
    Nice article really…
    how about debt consolidation? does it help in protecting against bankruptcy?
    I just read it here..so want to know from you.

  2. People really need to protect their assets, and if they see a need to cut back on bills they don’t need cable cellphones etc they should, even finding lower rates for your credit cards with companies offering no fee balance transfers is a good idea if you’ll pay less over the long run why not. I think bankruptcy should be a last option for everyone.

  3. Reply Avatar for chapter 13 bankruptcy rules
    chapter 13 bankruptcy rules February 5, 2011 at 7:39 pm

    Thank you so much for this article.

    Bankruptcy ѕhουld nοt always bе treated аѕ a last resort.

    More Powers.

    Cheers,

  4. Just wondering, if you go the Chapter 13 route about how long would it take before your credit score might start going up?

    • @McClain3: Chapter 13 bankruptcy will be reported on your credit report during you payoff period. Once you have completed your repayment plan it will remain for an additional 7 years. As long as the bankruptcy is still on your credit report, it will negatively effect your credit score. But the effect will be minimized as time goes on. If you practice good credit habits, such as timely payments and establish a positive pattern, that will help you improve your credit rating.

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