When determining if filing for bankruptcy is the best option, many debtors are surprised to learn that there are several different types of bankruptcy. Which type of bankruptcy that is best for you depends on certain qualifications for each, set out by the bankruptcy court. While doing your research on bankruptcy, you may come across the different chapters of bankruptcy, most commonly including Chapter 7, Chapter 11, Chapter 12, and Chapter 13. Knowing the difference between the different chapters of bankruptcy is an important step in your decision to file.
Very often, especially due to numerous media ads targeting struggling businesses, people at some point or another have heard of Chapter 11 and Chapter 12 bankruptcies. Chapter 11 bankruptcy applies to corporations, partnerships, and businesses. This type of bankruptcy typically proposes a plan of reorganization to keep the business alive, and provides the opportunity for the business to pay off debts over a period of time. This type of bankruptcy is regularly heard about on the news, when large corporations are facing bankruptcy. Despite large corporations regularly using Chapter 11 bankruptcy for relief, people in businesses and individuals can also seek relief through a Chapter 11 bankruptcy. Chapter 12 bankruptcy is less common, and provides for adjustment of debts of a “family farmer” or “family fisherman” as those terms are defined in the Bankruptcy Code.
The most common types of bankruptcy for individuals who are personally filing are Chapter 7 bankruptcy, and Chapter 13 bankruptcy. A chapter 7 bankruptcy is the type of bankruptcy that people typically think about when they hear the term “bankruptcy”. Chapter 7 provides the opportunity for the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors. Essentially, this type of bankruptcy allows for the trustee in the case to sell off any unprotected assets to benefit the creditor. Often, people who file a Chapter 7 bankruptcy do not have many unprotected assets to sell. With the application of exemptions, it is very common for debtors to have a “no asset chapter 7” case, which means the creditors will not be receiving any money from the bankruptcy estate. As for benefits for the debtor, it allows the debtor to no longer be responsible for any unsecured debts, such as credit card bills and medical bills. Chapter 7 bankruptcy can be used by individuals who are personally filing, and it can also be used by business owners who are interested in liquidating their companies.
A Chapter 13 bankruptcy varies from a Chapter 7 bankruptcy, in that it provides for the adjustment of debts for individuals with regular income. This allows individuals to pay back their debts over time, usually three to five years, through a Chapter 13 plan payment. This type of bankruptcy is especially beneficial to individuals with over-median income, and individuals who have large amounts of arrears on their homes and/or cars.
If you would like to know which type of bankruptcy is right for you, contact a St. Louis Bankruptcy attorney today!