Types of Bankruptcy
Bankruptcy is the offset of debt declared by a federal court in the US. The purpose of bankruptcy proceedings are to allow a debtor to regain control of their financial situation. There are several different types of bankruptcy ranging from corporate to individual filings. The three types are Chapter 7, Chapter 13 and Chapter 11.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy petition asks the federal courts to provide a total offset of all unsecured debts in the name of the filer. Not all debts are eligible for an offset through bankruptcy. Unsecured credit card debt is the obvious offset, and any other unsecured debt owed by the filer. However, certain taxes, child support payments, alimony and student loans can't be offset by filing for bankruptcy. The exception to this is student loans can be offset if it is proven in court that repayment would cause severe hardship. This is extremely tough to prove.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy allows for the federal courts to step in and act as a liaison between debtor and creditors. This type is also called a wage-earner's plan since it allows the court to set up a repayment plan for the debts. The repayment period is set for three to five years, according to the filer's median income in the state they reside. No payment plans can be legally made for longer than five years. An individual is eligible for Chapter 13 bankruptcy if their unsecured debt is no more than $307,675 and secured debt is no more than $922,975. These amounts are adjusted periodically.
Chapter 11 Bankruptcy
A restructuring of company debt, and often times of the company itself, is called a Chapter 11 bankruptcy. Individuals may also choose to petition for a Chapter 11 bankruptcy, it is similar to a Chapter 13 filing. Companies and corporations filing under Chapter 11 must provide all financial papers to the federal courts. The company and its creditors will set up a restructure of the debts, with the creditors voting individually on whether the new plan will meet their criteria. A Chapter 11 petition by a sole proprietor will consist of both personal and business assets and debts. If partners are involved, they may need to file for their own protection under bankruptcy laws.
Repercussions of Bankruptcy
Filing for any petition of bankruptcy has its repercussions. Chapter 11 and 13 filers may find it easier to reestablish credit lines, while Chapter 7 filers will have a tougher time. All bankruptcy petitions stay on an individual credit report for 7 years. Creditors willing to work with people after a filing will charge a higher interest rate.
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