In Title 11 of the United States Code (the Federal Bankruptcy Code), there are four types of bankruptcy filings:
• Chapter 13 – Adjustment of Debts of an individual with Regular Income
• Chapter 11 – Reorganization
• Chapter 7 – Liquidation
• Chapter 12 – Adjustment of Debts of a Family Farmer with Regular Annual Income
The filing of your bankruptcy is determined by a person’s financial situation. Currently the most common filing is Chapter 7.
A debtor that is filing Chapter 7 is basically wiping the slate clean and starting over. When filing Chapter 7 you are assigned an administrator or a Trustee to maneuver the sale of the debtor’s assets. This does not mean necessarily everything you own is sold. Federal and state laws allow certain exemptions, meaning that the debtor might get to keep some property, such as his or her primary residence or some personal items. Once a debtor’s assets are liquidated, the trustee pays certain creditors with the monies that were raised. Most of the financial obligations are forgiven or discharged. Once you have filed Chapter 7 you cannot file a Chapter 7 again for 7 years, and the debts that were not filed in the previous Chapter 7 cannot be discharged in the next filing.
There are certain debts that a debtor will receive not forgiveness for. They are alimony, child support, taxes and student loans. If a lot of your debts fall into this category you might be better off filing Chapter 13.
Chapter 13 and 12 are basically the same filing, except that Chapter 12 is for Family Farmers and Chapter 13 is for individuals. If you have a steady income and less than $269,250 in unsecured debt and less than $807,750 in secured debt, you can file Chapter 13. Once you file Chapter 13 a trustee is assigned to you. The Trustee and the debtor develop a proposal for a repayment plan. The court decides whether to accept or alter the payment plan or dictate another repayment plan. Once a plan is agreed upon, it can take anywhere from 3 to 5 years to repay.
Maybe you are wondering why someone would file Chapter 12 or 13 over Chapter 7. There are a few reasons for this:
• In most Chapter 12 and 13 cases- the debtor only pays back a portion of what they owe. Sometimes it’s as little as 30 to 50 cents on the dollar.
• Under Chapter 12 and 13 filings, debtors don’t have to liquidate their assets. – they actually get to keep everything, not just items that meet the legal exemption.
Chapter 11 is very similar to Chapter 13. The main difference is that there is no limit regarding the amount of money owed by debtor. Originally this filing was only for large corporations, individuals can file Chapter 11 as well.
Filing a bankruptcy cannot be taken lightly, it will affect your credit for years. The decision to file should be made under the counsel of a financial planner or a legal representative.
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