A general federal court process that allows individuals and businesses to discharge their debts and helps in repayment to their creditors is called Bankruptcy.
Liquidation and reorganization are two types of bankruptcy categories.
Depending upon your entitlement, the following is some information on bankruptcy proceedings by the bankruptcy court.
Chapter 7 is a typical bankruptcy proceeding for individuals and businesses.
Usually, bankruptcies in Chapter 7 are from the liquidation category, meaning that your property will be taken away and sold to repay your debts.
When an individual files for Bankruptcy under Chapter 7, it is called consumer Chapter 7 bankruptcy. And when a business files, it is called business Chapter 7 bankruptcy.
Generally, these proceedings go on for three to six months.
Chapter 13 bankruptcy falls in the reorganization type where you can retain your property but have to submit and follow a repayment plan that can help you repay your debts in installments or one go but only in a period of three years to five years.
While seizing and selling off some of your property to pay off your debts might happen in Chapter 7 bankruptcy, unsecured debts will also be wiped out, which is a definite advantage.
However, the procedure for secured debts is different.
You can either let the creditor take possession of the property securing the debt or pay the creditor a replacement value equal to that of the property acquired by debt.
You can also continue making payments to the creditor on your debt.
You need to prove your eligibility for filing for Bankruptcy under Chapter 7, i.e., you must show that funding the repayment plan for Chapter 13 bankruptcy isn’t possible with your income.
All debts cannot wipe out by Chapter 7 bankruptcy, like taxes due, child support, and alimony payments cannot include debts.
Your income, debt owed, and the amount your creditors would get if you filed for Chapter 7 bankruptcy decide the amount you’ll need to pay.
Chapter 13 bankruptcy, also called a wage gainer, can only be filed by people with fixed incomes.
In Chapter 13 bankruptcy, you must coordinate with the court to create a repayment plan for the coming 3 to 5 years and stick to it.
Also, for filing Bankruptcy under Chapter 13, you must prove that the debt is below filing limits.
If you’re behind in your payments of secured debts, your property might not be repossessed.
You can pay past unpaid payments in the debt repayment plan within a given period.
Chapter 11 and Chapter 12 are other types of reorganization bankruptcy.