Types Of Bankruptcy - What Are The Differences?

For individuals there are two types of bankruptcy including Chapter 7 in which all of their debts are essentially eliminated and Chapter 13, in which their debts are paid off over a 5 year period of time, supervised by a trustee from your court.

Businesses can use a Chapter 11 bankruptcy during which they can reorganize their debt until it’s paid off or renegotiated in order to remain in business until their financial house is back in order.

Following the new bankruptcy laws there are now tests in place to determine whether or not an individual can qualify the chapter 7. You will need to consult with a bankruptcy attorney to find out which bankruptcy you will be able to file under.

The main part of the test for an individual will consist of an income calculation to find out whether or not the individual has a monthly income that is higher than the state average, if he or she does the individual would then have to file under chapter 13 and would not be allowed access to chapter 7.

With a chapter 7 bankruptcy all debts whether secured or unsecured can be eliminated. But sometimes the court will seize some assets to be sold off so that at least some of the individual’s debt can be satisfied.

So out of the two different types of bankruptcy an individual can file under, chapter 7 will reward the most financial relief.

The paying off of debt over time

If the individual cannot qualify for a chapter 7 bankruptcy, they will still be able to file for chapter 13. In doing so they will be obligated to make payments on a monthly basis to a court trustee, who will in turn send out the payments to the individuals different creditors.

Chapter 13 will allow the individual to honor their financial obligations and at the same time stop creditors from demanding collection actions against the debtor.

Many people often used to start with I chapter 13 bankruptcy, but then found themselves financially incapable of meeting their obligations and so managed to move into a chapter 7 bankruptcy.

However since 2005 when the all-new bankruptcy laws became law, the only way to qualify for chapter 7 bankruptcy is to come up with a below average monthly income result in the courts means test.

So basically if an individual has the means as it were, the current income level, to be capable of paying off their debts, they will be restricted whether they like it or not to a chapter 13 bankruptcy.

Whether you file for chapter 7 or 13, any assets or initial payments will first go to creditors with priority access. Priority access will be granted to but not limited to, student loans, part income taxes and generally most other government obligations you may have.

When all priority access creditors have had their debts resolved, the paying off of debts process will then move on to those creditors that were unsecured.

It is really, really vital to remember that what ever you do, what ever bankruptcy you can file for, bankruptcy really must be your last option. Once you’ve filed bankruptcy there is no turning back and it will remain on your public records for as long as 10 years.

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