Bankruptcy: A Brief Overview

Bankruptcy is a process which allows individuals to become free from overwhelming debts when they find themselves unable to repay them. Bankruptcy may be accomplished through either liquidation or reorganization methods.

The Most Common Types of Bankruptcy

The most common type of liquidation bankruptcy for consumers is Chapter 7 bankruptcy. This option is considered liquidation because the person or organization to whom a debt is owed may acquire and sell property of the debtor in order to compensate for part of the unpaid debt. It is important to note that in such a case, there is an option of having some personal or business property become exempt and, therefore, protected against such seizure and sale.

One appealing feature of Chapter 7 bankruptcy is that bankruptcy usually lasts around 3-6 months, as opposed to the 3-5 years of Chapter 13 bankruptcy. Chapter 7 bankruptcy is available for both individual consumers and businesses. However, if an individual or organization qualifies for Chapter 13 bankruptcy, they cannot file for Chapter 7 bankruptcy.

The most common type of reorganization bankruptcy is "Chapter 13 bankruptcy."  Under Chapter 13 bankruptcy, no personal property is liquidated. Instead, creditors receive compensation for all or some of the unpaid debt through a set amount of on-going monthly monetary payments from the debtor.

If you are considering filing for bankruptcy, it  is wise to enlist a legal professional who specializes in bankruptcy. An attorney who specializes in bankruptcy is an invaluable resource for determining which type of bankruptcy you may qualify for, what risks are associated, and help to make the law work in your favor. With proper management, bankruptcy can be used to eliminate credit card, unsecured loan debts, and medical bills, and help to improve quality of life long-term. Click here to learn more about that.

Chapter 11 and Chapter 12 Bankruptcy

Along with Chapter 13, Chapter 11 and 12 bankruptcy are also based on reorganization strategies.

Businesses that are struggling financially and have more debt than is allowed by Chapter 13 bankruptcy are the most common candidates for Chapter 11 bankruptcy. Organizations filing for Chapter 11 bankruptcy must be prepared for an expensive and time-consuming process and expect reorganization within their organization and, as a result, Chapter 11 bankruptcy is infrequently used by most organizations.

Chapter 12 bankruptcy is also a less common type of bankruptcy due to the very specific population that is eligible to file for it. In order to be eligible for Chapter 12 bankruptcy, 80% of debts must be the result of operating a family farm.  Chapter 12 bankruptcy is similar to Chapter 13 bankruptcy but with some adjustments to accommodate the specific needs and costs of family farm operation.