The Personal Types Of Bankruptcies
The first type of personal bankruptcy most people talk about is Chapter 7 bankruptcy. With Chapter 7, you give your assets over to your creditors.
In exchange, your unsecured debts and some secured debts will get forgiven. The courts will also provide you legal protection from further collection actions done by your creditors to get their money back .
The other main individual type of bankruptcy is Chapter 13 bankruptcy. Instead of seizing your assets, the court will instead create a payment plan for you to follow every month over a few years to pay back your debts. Chapter 13 affords you a degree of protection from creditors as well.
In exchange for not seizing your assets though, the court gets to see your spending habits and regulate them strictly. Youre also ineligible for Chapter 13 bankruptcy if your unsecured debt exceeds around $419,000 and/or your secured debt exceeds around $1,257,000.
In some cases, individuals can file for Chapter 11 bankruptcy. This type involves figuring out how to cycle around your assets and keep you in the financial game while paying off your debts. However, theres a very high financial bar of entry: only those with a massive amount of assets can use Chapter 11 viably.
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What Are The Disadvantages Of Filing Chapter 11
Chapter 11 bankruptcy is the most complex of all bankruptcy cases. It is also usually the most expensive form of a bankruptcy proceeding. For a company that is struggling to the point where it is considering filing for bankruptcy, the legal costs alone might be a bit onerous. Plus, the reorganization plan has to be approved by the bankruptcy court and must be manageable enough to where they can reasonably pay off the debt over time. For these reasons, a company must consider Chapter 11 reorganization only after careful analysis and exploration of all other possible alternatives.
If I File Bankruptcy How Will It Affect My Future Credit And My Job
Different people have different experiences obtaining credit after they file for bankruptcy. As a general rule, most people find it more difficult to obtain long-term credit, such as a home mortgage, shortly after a bankruptcy has been filed. For other types of credit, however, experiences vary depending on other factors. The Bankruptcy Code prohibits your employer from discharging you or discriminating against you solely because you have filed a bankruptcy case. A bankruptcy can remain on your credit report for up to 10 years, but many people are able to raise their credit score to a relatively good level within a few years after bankruptcy.
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How Does Filing Bankruptcy Impact Credit
Your credit may not be in tip-top shape by the time you consider filing for bankruptcy, since high balances and missed payments are the top factors affecting your credit score. Still, the presence of a bankruptcy on your credit report will severely impact your credit scores and creditworthiness the entire time it is on your report. That impact will lessen as time passes, however. Chapter 7 bankruptcy remains on your report for up to 10 years, and Chapter 13 stays there for up to seven years.
Its not an ideal credit situation, of course, but you can use the time to manage your debts wisely and make consistent on-time payments. Like with any damage to your creditworthiness, its possible to rebuild your credit with some focus and patiencealong with using the debt relief provided by the bankruptcy to get back on track financially.
Chapter 1: For Foreign Creditors
A fairly recent addition to the federal Bankruptcy Code, Chapter 15 was adopted to enhance cooperation in international insolvencies. Such filings are rare, but they are useful to parties representing debtors, creditors, and assets involving more than one country seeking efficient and reasonable bankruptcy processes.
A Chapter 15 filing typically is not central to a bankruptcy involving a foreign individual or entity. Instead, it is considered ancillary, the main event unfolding in the foreigners home nation.
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Two Types Of Bankruptcy For Individuals: The Payment Plan & The Discharge Of Debts
Chapter 13 Bankruptcy is often referred to as the payment plan bankruptcy because under the terms of the Chapter 13, the petitioner does not seek to discharge all debt. Instead the goal of the Chapter 13 bankruptcy is to restructure the petitioners payments so they are more manageable in comparison to the debtors income, or to get rid of a portion of the debt so the debtor can manage the payments on the remaining debt.
Chapter 7 Bankruptcy is the traditional form of bankruptcy that most are thinking of when they refer to bankruptcy generally. Through a Chapter 7 bankruptcy, the petitioner pays for or gives up any property connected to secured debts. Surrendered nonexempt property is sold by the bankruptcy trustee in order to pay off as much debt as possible. The petitioner keeps exempt property, and all debt is discharged . When a debt is discharged by bankruptcy, the debtor is forever released from all obligations to pay the debt.
How Many Types Of Bankruptcy Are There
There are 6 different types of bankruptcy according to the United States Bankruptcy Code. Each one of them is named after the chapter in the code where it is described. Hence, we have the following bankruptcy types: Chapter 7 , Chapter 9 , Chapter 11 , Chapter 12 , Chapter 13 and Chapter 15 . These chapters apply to different circumstances and entities. The most common bankruptcy types people usually resort to are Chapter 7 and Chapter 13 for individuals and Chapter 7or Chapter 11 for companies. In this post, we are going to summarize the most common aspects related to each bankruptcy option.
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Can Spouses File A Bankruptcy Together
Yes. The Bankruptcy Code allows spouses to file jointly for bankruptcy. The question of whether you and your spouse should file a bankruptcy together depends on whether you both are liable for the debts involved. You should remember that filing bankruptcy generally protects only the person who files for it.
How Do I Find Out Whether I’d Qualify For Chapter 7 Bankruptcy
You’ll take the two-part Chapter 7 means test. If your household income is lower than the median household income in your state, you’ll pass. However, if you don’t qualify after the first part, you’ll have another chance. The second portion of the means test lets you subtract some monthly expenses from your income. If you don’t have enough remaining to pay a meaningful amount to creditors through a Chapter 13 repayment plan, you’ll qualify for Chapter 7.
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Chapter : For Family Farmers And Fishermen
Similar in design and intent to Chapter 13, Chapter 12 provides family farmers and family fishermen who meet certain criteria to propose a repayment plan lasting from three to five years.
However, anticipating the seasonal nature of many small farming and fishing operations, Chapter 12 allows more flexibility in structuring periodic payments.
Chapter 12 helps multigenerational families involved in the business in which the parents have guaranteed debt.
Family farmers or fishermen considering Chapter 12 should be aware of several changes that came about in 2019 regarding the sale of assets. Its a good idea to review these changes with an attorney or an accountant trained in bankruptcy law.
Which One Should I Choose
Chapter 7 is, by far, the more popular form because its cheaper, quicker and effective at relieving responsibility for debt if you qualify! And thats a big if. You must pass a means test, meaning your disposable income is under the median income in your state. If you dont qualify for Chapter 7, you can always fall back on Chapter 13.
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Is It Right For You
Chapter 13 requires the debtor to submit a repayment plan after meeting with creditors. Then the plan has to be approved by the court at a hearing. The plan will call for regular, usually monthly, payments. And the debtor must start making payments within 30 days, even if the plan hasnt won approval yet. If you need your debts discharged sooner, consider Chapter 7.
What To Do If You Have Too Much Debt
If your debt feels overwhelming, there are a few options you might have. Some of these paths include:
- Negotiating directly with creditors. Creditors would rather get some of the money you owe, rather than risk getting nothing . Be transparent about your financial situation, and see if theyre willing to work with you on a payment plan, debt amount reduction or other solution.
- If you feel like you need more guidance, a nonprofit agency can help. Theyll help stop collection calls and create a debt management plan thats sustainable for your financial situation. You can find out more from the National Foundation for Credit Counseling.
- Bankruptcy. Filing for bankruptcy is an option if youve tried all other ways to address your debt. This path has long-lasting effects on your credit record, and can adversely affect your credit anywhere from seven to 10 years.
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Two Most Common Types Of Bankruptcy
Everyone falls on hard financial times at one point or another in their lives. Most often, youre able to pull yourself out of debt. Other times, youre forced to make some tough decisions about your future. If youre in a financial crisis, bankruptcy is designed to provide debt relief to those who can no longer stay solvent, and it could be your best option.
Here are two types of bankruptcy:
Chapter 7Most folks in Arkansas would prefer to file Chapter 7 bankruptcy, because it eliminates most unpaid debt. However, it also requires that you liquidate assets to pay off a portion of the debt, which makes it hard to keep your home if it is being foreclosed on. Those who file for Chapter 7 must pass a means test, which is designed to exclude those with high incomes or a wealth of assetsessentially those who could pay their debts without filing.
Chapter 13If you dont qualify for Chapter 7, you may consider Chapter 13. In Chapter 13, instead of debts being eliminated, theyre restructured so that a reasonable payment plan can aid you in paying the debts off. In most cases, filing Chapter 13 bankruptcy will cease any foreclosure process that is currently in the works, which is why you may consider it if you want to keep your home.
Chapter : For Foreign Creditors
A fairly recent addition to the federal Bankruptcy Code, Chapter 15 was adopted to enhance cooperation in international insolvencies. Such filings are rare, but they are useful to parties representing debtors, creditors, and assets involving more than one country seeking efficient and reasonable bankruptcy processes.
A Chapter 15 filing typically is not central to a bankruptcy involving a foreign individual or entity. Instead, it is considered ancillary, the main event unfolding in the foreigners home nation.
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Why Chapter 13 Is More Common In Black Zip Codes
If one of the primary reasons to choose a Chapter 13 bankruptcy instead of Chapter 7 is to protect one’s home, why are those in majority-Black ZIP codes choosing Chapter 13 at a higher rate, when Black Americans have a lower homeownership rate than White Americans do?
ProPublica’s analysis showed that it most likely comes down to the cost of each filing type and when the fees are due. The shorter and more successful Chapter 7 option typically cost about $1,000 at the time of the study, and the fee was due upfront or within a few weeks. In contrast, Chapter 13 is often offered at $0 down to start a case. Though the ultimate cost of a Chapter 13 filing was $3,000 to $4,000, those bills come due over the duration of the filing, which typically lasts five years.
Consequently, debtors in majority-Black neighborhoods who can’t pull together $1,000 or more to initiate a Chapter 7 process are opting instead for Chapter 13, which they can start for free, despite the fact that the benefit of protecting a home from foreclosure may not apply to them if they are renters.
How Chapter 13 Bankruptcy Works
Chapter 13 is a reorganization bankruptcy designed for debtors with regular income who have enough left each month to pay back at least a portion of their debts. The amount you’ll repay will depend on how much you earn, your debt, and how much property you own.
Typically, Chapter 13 bankruptcy is for debtors who:
- don’t qualify for Chapter 7 but need debt relief to lower credit card payments, stop litigation, prevent a wage garnishment
- have nondischargeable debts such as alimony or child support arrears that they’d like to pay off over three to five years, or
- have fallen behind on a house or car payment and want to catch up on missed payments and keep the property.
Other benefits exist, too, such as the ability to “cram down” the amount owed on a vehicle or investment property to the property’s value. Some filers can also strip wholly unsecured junior liens from your residence.
In Chapter 13 bankruptcy, the trustee doesn’t sell your property. However, you must pay creditors an amount equal to the nonexempt property value. But that’s not all you’ll pay. The total amount of your repayment plan will depend on your income, expenses, and debt type.
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Plus Info On The 2019 Small Business Reorganization Act
Most new small businesses dont survive and are faced with the decision concerning whether they should file for some form of business bankruptcy. Between 2005 and 2017, only about one-fifth of new small businesses survived more than one year. About half of those businesses continued on for up to five years, while only about one-third made it to 10 years.
Bankruptcy is a process a business goes through in federal court. It is designed to help your business eliminate or repay its debt under the guidance and protection of the bankruptcy court. Business bankruptcies are usually described as either liquidations or reorganizations depending on the type of bankruptcy you take.
There are three types of bankruptcy that a business may file for depending on its structure. Sole proprietorships are legal extensions of the owner. The owner is responsible for all assets and liabilities of the firm. It is most common for a sole proprietorship to take bankruptcy by filing for Chapter 13, which is a reorganization bankruptcy.
Corporations and partnerships are legal business entities separate from their owners. They can file for bankruptcy protection under Chapter 7 or Chapter 11, which is a reorganization bankruptcy for businesses. The different types of bankruptcies are called chapters due to where they are in the U.S. Bankruptcy Code.
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Alternatives To Filing Chapter 7 Bankruptcy
If you are wondering if you should file for bankruptcy, there are many nonprofit consumer credit counseling organizations that have the ability to negotiate more favorable terms with creditors. Its particularly effective with credit-card companies. The repayment program will be managed expertly and fees could be avoided.
Here are some options:
Debt Management Plan Entering into a debt management program can provide relief from interest rates, late fees and penalties from creditors. Under a DMP, which is negotiated by credit counselors, you promise to pay back the full principal over time in an efficiently managed manner.
The debt management program provides an organized monthly payment plan. It provides an opportunity to handle the debt more efficiently than trying to sort it out yourself. By keeping the payments on track, it will be good for your credit score.
Some caveats: There is generally an enrollment and maintenance fee and the DMP is never a guaranteed option. Creditors have no obligation to participate.
Debt Consolidation This option reduces interest rates and combines all of your debts into one manageable monthly payment. Under debt consolidation, you take out a loan, which is used to consolidate and pay off all of your other debts.
Personal Loan for Bad Credit Yes, you can get a personal loan with bad credit, depending on your situation. You can expect high interest rates and should only consider this option if you can truly afford the monthly payment.
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When Chapter 13 Might Meet Your Needs
Chapter 7 bankruptcy isnt the best choice for everyone. Chapter 7 wont help people whose debts wont get wiped out , like certain income tax debt, student loans, and domestic support obligations. High-income filers find it hard to qualify. Its also not a good fit for people who would lose substantial equity in a home or other property if they filed for Chapter 7 bankruptcy, or those facing foreclosure or repossession. For those individuals, Chapter 13 bankruptcy would likely be a better choice.
What Happens To The Property I Own That Is Subject To A Lien
In some cases, the Bankruptcy Court can set aside or reduce a lien on your property. Additionally, individuals who want to keep the property secured by a lien can enter into reaffirmation agreements with the secured creditors. Under a reaffirmation agreement, the debtor promises in writing to continue to pay the amount owed to the creditor despite the bankruptcy and in return, the creditor agrees to not seize the secured property so long as the debtor continues to make the necessary payments. All reaffirmation agreements must be filed with the bankruptcy court. If you default on your payments under a reaffirmation agreement, the creditor can hold you liable on any deficiency and repossess the secured property accordingly.
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