Types Of Bankruptcy – A Quick Glance Into The Six Important Bankruptcy Chapters

While personal bankruptcy can be filed through Chapter 7 or Chapter 13, there are other types of bankruptcies that apply to different situations. While Chapter 7 and Chapter 13 seek to provide repayment solution either by liquidating the financial assets or repayment schedule respectively, the other chapters pertain to businesses, fishermen or farmers, foreign investors etc. A quick glance into the six important chapters is given below:

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1. Chapter 7: The court raises money by sale or liquidation of debtors’ assets to repay the debts.

2. Chapter 9: Single or multiple municipal debts are resolved by filing for Chapter 9.

3. Chapter 11: Primarily used for businesses wherein the assets are liquidated while still continuing the business operations.

4. Chapter 12: Fishermen or Farmers that may have lost their financial strength owing to a bad catch or a bad harvest.

5. Chapter 13: A repayment plan is devised wherein the debtor agrees to repay the debt in stipulated time using monthly salary.

6. Chapter 15: Foreign investors or debtors are enabled to clear off their debts by filing for this chapter.

However, before you file for bankruptcy, be clearly aware about the financial outcomes over a period of seven to ten years. Once you file bankruptcy, you may lose your financial assets. Your credit report will be negatively affected and you may not be given a reasonable credit for over a long period of ten years. Rather plunging into another unmanageable financial risk, you should consider bankruptcy options.

If you chart out certain workable options, you can avoid the long term hassles of bankruptcy and still be free of debts. The following options to bankruptcy can be useful:

a) Work out ways to sell off assets like car and other home valuables that people may be willing to buy. This may not fetch entire sum in debt but can at least ease off partial payment amount.

b) You can take help from your workplace seniors or peers in terms of a salary raise or a promotion to help your cause.

c) Negotiations can sometimes help as you can make your creditors understand that you cannot pay the entire debt right away but will take some more time to do so. It will certainly be better for the creditors than not getting anything in case you file for bankruptcy.

d) It is always reasonable to take some loan from trusted family members or relatives to temporarily pay off some debt (if your financial condition is still sustainable to not file for bankruptcy) while assuring to return loan in due course of time.

e) Work out some other options if you are staying in a rented house, like shifting to a smaller place or moving in with some friends or relatives etc. This of course is a personal choice and should not be imposed.

The three types of business bankruptcies are usually filed under Chapter 7, Chapter 11 or Chapter 13 depending on the status of the organization.

Chapter 7 is an option filed by businesses when apart from liquidation there is no way out. It also means that practically the business is over. Post distribution of company’s assets to the creditors, the owner is given a discharge from obligation of debts.

Chapter 11 provides the company with a more flexible approach wherein it continues its operations but plans out a repayment schedule in coherence with the creditors and the court. The time period of repayment can extend to twenty years and above.

Chapter 13 is an option for sole proprietorships wherein a repayment schedule is charted out depending on how much you earn, owe and the assets or property owned.

As in personal bankruptcy, business bankruptcy should also be filed only after consulting a business attorney and after you have explored all the other possible repayment options.

The two types of personal bankruptcies are Chapter 7 and Chapter 13.

Under Chapter 7 the court takes possession of the individuals’ assets and post liquidation pays off the debts from that money.

Under Chapter 13, the individual can plan out a schedule of regular payments that he will make to the creditors over a period of time. This applies to those who earn a sufficient regular salary and can plan repayment over a period of five years.

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