Types of Bankruptcy

Filing for bankruptcy may be an option when one is overwhelmed by debt. There are several types of bankruptcy that may be filed, depending on the particular situation. We’ll look into the two more common types of bankruptcy: Chapter 7 and Chapter 13.  

Chapter 7

This type is the most common, and is available to citizens and businesses. When someone files this type of bankruptcy, all of their assets that can be sold, called “nonexempt assets,” are handed over to a trustee who sells them to pay off the client’s creditors. Whatever debt is left unpaid after that is cancelled.

However, you can’t file Chapter 7 Bankruptcy for certain types of debt, including, but not limited to:

•  Alimony and child support
• Drunk driving judgments and criminal fines or restitution
• Debts incurred by fraud
• Back taxes under 3 years old and student loans
• Recent purchases involving substantial amounts
• Properly executed contracts involving titles or liens such as land or automobiles

Chapter 7 may be an option if you have no hope of repaying any debts, you have debts without co-signers, you’re about to be sued by your creditors, you need to protect exempt property and income, or you don’t qualify for Chapter 13.

Chapter 13

This type of bankruptcy may help the client by structuring their debt into a manageable payment schedule over a period of time not exceeding five years. It requires the client to promise to pay off 10 to 100 percent of their debts by that time, the exact amount being determined based on the amount and type of debt.

Although there are restrictions on what Chapter 13 bankruptcy can be used for, these restrictions are fewer than those for Chapter 7. Chapter 13 Bankruptcy cannot be filed for alimony and child support, drunk driving judgments and criminal fines, and student loans.

Chapter 13 may be an option if:

·         You’ve filed Chapter 7 recently

·         You have debts with cosigners

·         You know you are able to pay your debts in five years

·         You do not qualify for Chapter 7

·         You’re late on your mortgage payments and you owe back taxes

Chapter 13 is a reorganization bankruptcy designed for debtors with regular who can pay back at least a portion of their debts through a repayment plan. If you make too much money to qualify for Chapter 7 bankruptcy, Chapter 13 may be the only option. However, many debtors choose to file for Chapter 13 bankruptcy because it offers many benefits that Chapter 7 bankruptcy does not (such as the ability to catch up on missed mortgage payments or strip wholly unsecured junior liens from your house).