Declaring bankruptcy isn’t a decision that should be taken lightly: you need to do a lot of careful research and consider a number of factors before creating and filing a petition. One of the factors you need to consider is which type of bankruptcy you wish to file for. Filing for the wrong type of bankruptcy will probably have your petition rejected or your case dismissed, and if it is accepted, you might wind up losing out on benefits you could have received from a different type. Let’s take a closer look at the most common types of bankruptcy and figure out which is right for you.
To put it simply, the Chapter 7 process involves adding up all of your debts and assets, liquidating (selling off) your non-exempt assets, and then using the proceeds to pay off what they can cover of your unsecured debts. Any remaining unsecured debts are then discharged. You must pass a “means test” in order to qualify for filing Chapter 7 bankruptcy.
Unlike Chapter 7, there is no liquidation process during Chapter 13 bankruptcy, and the process takes much longer to complete. In this process, all your debts are figured out, and you work with the court and your creditors to develop a plan to repay your debts within a span of three to five years. This plan lets you keep your most important assets, such as your house, while still granting you protection from debt collection efforts by creditors.
For Companies & Business Entities
Companies who wish to continue business operations as normal while reorganizing their debts and financial affairs are encouraged to file for Chapter 11 bankruptcy. In these instances, the debtor must disclose their affairs and create a plan that allows them to return to profitability which must be approved by the court.
This is a fairly new type of bankruptcy and one with a very specific use: to allow farmers and fishermen to continue to operate their businesses while reorganizing. In essence, Chapter 12 is similar to Chapter 11 in that a business’s assets are reorganized and the business is allowed to create a three to five year repayment plan, but the farmer or fisherman is also allowed to continue their operations.