3 Types of Bankruptcy
How do the 3 types of bankruptcy work? What makes them different from each other? Understanding the difference between the 3 main types of bankruptcy is crucial. It will help you better decide which type of bankruptcy relief either you or someone you know may desperately need. The 3 types of bankruptcy are Chapter 7, Chapter 13, and Chapter 11.
The Most Common Type: Chapter 7 Bankruptcy
The most common and well-known type of bankruptcy is Chapter 7 bankruptcy. This is the classic type of bankruptcy where you get a total release of all your debts. All your debts are forgiven and discharged. This allows you to get a full fresh start very quickly. Of the three types of bankruptcy, Chapter 7 is the one that people most commonly understand. It gives you a total fresh start
People choose the Chapter 7 type of bankruptcy because it is the most powerful. Out of the three types of bankruptcy, it is the only one that does not require any repayment of debts. You will, however, have to turn over property to be sold in very rare situtaions. This is usually only if you have multiple paid-in-full properties, large amounts of cash, or other high value assets. Most people that file Chapter 7 do not have to turn over any property at all. All of their possessions are fully protected.
The Personal Repayment Type: Chapter 13 Bankruptcy
The Chapter 13 requires a montly repayment plan that usually lasts for 3 to 5 years. Of the 3 types of bankruptcy, this one is absolutely perfect for reorganizing your personal finances. Chapter 13’s can lower car payments. They can prevent forelcosure and repossession. They can even consolidate all of your debts into one simple payment. Chapter 13 is a powerful type of bankruptcy that can be filed to forcefully and instantly put all of your finances back together.
Chapter 13’s require that you repay your general creditors only to the amount that you are able with your budget. Therefore, some people will only have to pay a very low percentage back. Other people who file this type of bankruptcy may pay the majority of their debts back. It all has to do with the income level available and the amount of debt.
The Business Reorganization Type: Chapter 11 Bankruptcy
Out of the 3 types of bankruptcy, Chapter 11 is certainly the most powerful, complex, and expensive type of bankruptcy. Chapter 11 cases are usually only filed by businesses. However, individuals are sometimes forced to file Chapter 11 also if their debt load is too large for Chapter 13.
The Chapter 11 type of bankruptcy is designed to allow a business or other entity to continue operations when they face an insurmountable amount of debt. Without Chapter 11, such a business or entity would eventually fail. Such and abrupt failure would cause chaos. It would also cause the unfair and uneven selling of any existing assets for their creditors. Without 11, employees, creditors, and even society itself would frequently suffer from these abrupt and chaotic corporate failures. Chapter 11 offers an alternative where the multitude of parties involved may end of getting a much better deal through the bankruptcy system. Justice and balance can be brought into the situation as the bankruptcy court allows the business to submit a well-thought Chapter 11 plan that will hopefully satisfy most parties.
