Understanding What Bankruptcy Is
The topic bankruptcy is a little difficult to understand thus this article will discuss the different categories of bankruptcy which include Chapter 7 and 13 bankruptcies.
There are two types of bankruptcy which include the liquidations and reorganizations. Bankruptcy is a term used in federal court that aides both consumers and businesses repay their debts and rid themselves from their debts. The court protects you during the entire bankruptcy proceeding if you are entitled to it.
The most common types of bankruptcies include Chapter 7 and 13 proceedings. The Chapter 7 proceeding falls under the liquidation property while chapter 13 falls under reorganization. Both proceedings are different the fact that if a debtor files for Chapter 7, the property will be taken from you and sold while the proceeds will be used to repay your debt. On the other hand, Chapter 13 will allow you to keep your property but you need to submit a repayment plan within a given duration which usually takes about three years and this is the minimum.
Understanding Chapter 7
Debtors are allowed to file for bankruptcy under Chapter 7. However, if a debtor filing for bankruptcy is an individual, then the definition of bankruptcy is termed as consumer Chapter 7 bankruptcy while a debtor is a business entity, then it is called a business Chapter 7 bankruptcy. The entire proceeding of bankruptcy will last from three to six months.
Property Liquidation – in the Chapter 7 proceeding, your property may be seized from you and sold so that the proceeds will cover the remainder of your debts. The benefit of this type of bankruptcy is that all of your unsecured debts will be nullified and voided. However, there are types of properties that cannot be sold to repay your debts such as furniture, car and your clothes.
What it does to your secured debts – Unsecured debts are different with secured debts in the Chapter 7 bankruptcy proceeding. In this proceeding, you have a choice whether you will allow the creditor to repossess your property that secures the debt, continue to make your payments or pay the creditor a sum that is equivalent to the replacement value of the property. Moreover, some types of secured debts are also voided under the Chapter 7 proceeding.
Eligibility For Chapter 7 – Before filing for Chapter 7, you need to prove your eligibility first to file to this particular proceeding. For you to be eligible to Chapter 7, it is important that you cannot generate enough money to pay for your debts as well as spend for important expenses at home or to fund a Chapter 13 bankruptcy. Moreover, there are also other requirements that are required for you to be eligible for this proceeding.
There are debts that will not be nullified under Chapter 7 proceedings – there are several types of debts that cannot be nullified by Chapter 7 proceeding. In Chapter 7, credit card debts and unsecured loans are forgiven but obligations like alimony, child support and taxes cannot be wiped out in this proceeding. For more information about Chapter 7, you can see Debts that Remain after a Chapter 7 Discharge.
Understanding Chapter 13
Chapter 13 is also known as the bankruptcy proceedings for wage earners the fact that only people with reliable sources of income are allowed to file for it.
How To Pay Your Debts – When you file for this type of bankruptcy proceeding in the court, you need to submit a repayment plan to the court and stick with the plan within the next three years or more in order to repay your debts. The amount that you are required to pay is calculated based on your earnings, the amount of your debt and the amount your creditors want from you under Chapter 7.
Limitations on your debts – To be eligible for the Chapter 13 bankruptcy, it is important that you provide a proof that your debt is under the limits for the filing. Since September of 2009, the limitation set on secured debt was $1,010,600 while the unsecured debt limitation was $336,900. If you earn more than these amounts, then you are not eligible for Chapter 13 bankruptcy.
Secured debts repayment – You may be allowed to repay all of your secured debts first under Chapter 13 bankruptcy even if you are well behind on your payments. You can do this even if your property is not repossessed. The advantage of this option is that you can also put your entire past due payments into your new repayment plan and get to pay them over a specified number of years.
Other Types of Reorganization Bankruptcy Proceedings
Aside from the reorganization proceeding provided by Chapter 13, there are other types of proceedings stipulated under Chapter 11 and 12.
Understanding Chapter 11
This type of bankruptcy proceeding is used by businesses that struggle to pay off their debts. Moreover, some people also file for this proceeding if they are not qualified for Chapter 13 or if they own large amounts of non-exempt properties. However, the downside to this proceeding is that it is very expensive and takes a lot of time to file thus you need to consult with a good bankruptcy lawyer and check whether this option is right for you or not.
Understanding Chapter 12
This type of proceeding is very similar with Chapter 13. However, it is only available to those who have at least 80% of their debts originated from running a family farm. This particular bankruptcy proceeding is specially put up for struggling farmers that have a lot of debts but they have a high income to qualify for Chapter 13 but not enough time to undergo Chapter 11. If you want to file for this proceeding, be sure to talk with your attorney first.