Failure, collapse, and defeat are all words that come to mind when thinking about bankruptcy. Bankruptcy can be defined as the inability or impairment of a person or organization to pay their debts to their creditors. It is an option that benefits both the creditor as well as the debtor.
Within the last few years, bankruptcy laws have undergone reformation and now offer different options for filing. There are four different chapters of bankruptcy, but typically only two are ever thought of.
The most common form of bankruptcy is Chapter 7. This bankruptcy option is available to couples and individuals, as well as businesses and partnerships. Within Chapter 7, a debtor's assets can be exempt or nonexempt. Assets that are taxable properties are sold by a trustee of the courts to pay the insolvent amount of debt owed to the creditors. But, assets that are not exempt can be taken control of by the trustee and sold in order to pay creditors as much as the proceeds allow. One positive attribute of a Chapter 7 is that any earnings made after such a chapter is filed, are the debtors to keep.
The second most common bankruptcy form is Chapter 13. Individuals who have a regular income qualify for a Chapter 13. As defined by The Moran Law Group, a regular income is, "unsecured debt less than $336,900 and secured debt less than $1,010,650." This chapter usually lasts between three to five years and has a repayment between ten and one hundred percent, based on the debtor’s amount of debt and their income.
A debtor in a Chapter 13 is allowed to keep property, but must make regular payments to the Chapter trustee, who in turn pays the creditors. These regular payments are drawn from the debtor’s future income. While debtor’s are repaying their debts in a Chapter 13, they are given a means to prevent repossessions and foreclosures that does not exist within a Chapter 7.
The next bankruptcy option is a Chapter 11, which is usually used by businesses and partnerships. Individuals whose debt exceeds the amount of a Chapter 13 may also file. Usually the court oversees the debtor's business operations and assets, but allows the debtor to remain in control. A plan suggested by the debtor is submitted to the courts, and if accepted by a majority of creditor, will bind both parties to the terms of the plan.
The final option for bankruptcy is a Chapter 12. This is a basic reorganization modeled after a Chapter 13. The difference between the two, however, is that a Chapter 12 is for family farmers. Debtors keep their property, but repay creditors out of future income.
Careful examination of each bankruptcy chapter is necessary. Be sure to understand each option before choosing which to file. After close attention is paid to each option, debt relief is available to debtors and will allow for peace of mind.
