If you feel that you may have to file for bankruptcy, it is vital that you understand the various bankruptcy types that you can file to give you some breathing space and allow you to restructure your debt. For those pondering a bankruptcy filing, here are the five most common types of bankruptcy in the United States and what they mean for you.
1. Chapter 7
In bankruptcy law, all forms of legal bankruptcy are organized into chapters that are defined in the US Bankruptcy Code. The most common of these by far is Chapter, which is often referred to as “straight” bankruptcy.
In a nutshell, filing for Chapter 7 means selling your assets to pay off as much of your debt as possible, with any remaining debt usually being erased. You can only file for Chapter 7 if a judge decides that there is no way you will be able to earn enough money to feasibly pay your debts.
You will usually be able to keep essential assets, such as your house, but everything else will be liquidated, and you can start afresh.
2. Chapter 13
Chapter 13 is the easier one to file for since you don’t actually clear your debt. Rather, the court will arrange a payment plan for you to pay off your debts over a set time period, based on your income.
The court will also closely monitor your spending to ensure that you are committed to paying down your debts. Typically you will be given a period of five years to pay off your debts. Anyone can file for Chapter 13, providing you have less than $419,000 in unsecured debt.
3. Chapter 11
This is a type of bankruptcy that applies to businesses who need to repay their debts but still want a shot at continuing operations. As the COVID-19 economic crisis has hit, an increasing number of businesses have filed for Chapter 11 to reorganize their debt.
If you are facing a coronavirus bankruptcy, always consult an experienced bankruptcy lawyer who will be able to help you settle your debts on the best possible terms in these extraordinary times.
4. Chapter 12
You are unlikely to need to even consider filing for Chapter 12 unless you work in the agricultural or fisheries sectors. This is a type of bankruptcy help farmers and fishermen, who might have sizeable assets and debt that is too large for Chapter 13.
By filing for Chapter 12, you can restructure or even erase debt without having to foreclose your farm or sell all of your fishing equipment.
5. Chapter 15
Unless you have major overseas business holdings or own a multinational, Chapter 15 is not for you. This is a form of bankruptcy that allows foreign debtors to file for bankruptcy in the US, providing that they have assets and debt in the US.
If this situation does apply to you, it is absolutely essential that you hire a bankruptcy attorney, as filing for Chapter 15 is a long, expensive, and litigious process.
Don’t Let Your Bankruptcy Types Define You
No matter the bankruptcy types you are considering, it is important to keep looking ahead to the future. Bankruptcy is not the end of your financial life but a mere bump in the road.
To get back on track and move past your bankruptcy, we are here to help. Make sure to consult our expertly-designed Financial Growth guides today if you want to truly start afresh.