Different Chapters Of Bankruptcy & Their Purposes
Since the turn of the century there has been new establishment of bankruptcy laws. These different types offer several options in how the bankruptcy will work, how debts will be cleared and who can file the type of bankruptcy. As the new laws are more diversified, not every type of bankruptcy is applicable for every situation and it is important to make sure that you choose the right type of bankruptcy when filing, so you can get the most out of the process.
I will show the 3 main laws:
Chapter 7 bankruptcy can be filed by individuals or businesses. This type of bankruptcy wipes the debts clean with little or no repayment.
Under this type of bankruptcy a person takes their exemptions and everything not exempt is sold to pay debts. That is the only payment on debts made.
Once the bankruptcy is approved the persons debts filed under the bankruptcy are cleared.
Chapter 11 bankruptcy is similar to Chapter 7 as it can be filed by both business and individuals. However, this chapter is more skewed to businesses, though.
This type of bankruptcy is best for those with a lot of assets and a lot of debt. It is a repayment plan that allows a person or business to repay debts in a way they can afford while also keeping all their assets.
Under this chapter, businesses can still remain operational, which is a very good option for many.
Chapter 13 is another repayment plan for individuals only. It allows a person to keep their assets while repaying their debts and avoiding common collection methods.
Any type of bankruptcy protects a person or business from collection processes. Once bankruptcy is filed creditors must stop all collection processes. Creditors cannot file court charges, send letters to debtors nor to do anything that may harass the debtor.
So which is the best option? The answer is: It depends. You have to consider your assets and debts. Ultimately you should be concerned with the best way to clear your financial problems while at the same time not losing the things you own. In order to best do this you need to look at what property you own that is exempt and if you have any property that is not exempt.
Bankruptcy should not be considered as a way to get out of debt. It should be seen as a way to help you to because debts are completely eliminated. New laws have prevented many people from filing Chapter 7 because they can afford to repay debts.
