Various Types of Bankruptcy
Bankruptcy can be voluntary or involuntary. In the case of involuntary bankruptcy, a creditor will petition for a business to claim bankruptcy. This is so that the creditor can recuperate part of its money back. When we talk about voluntary bankruptcy, the debtor is the one to initiate the process, and this is the most common form of bankruptcy. Bankruptcy involves court proceedings since it is a legal issue, and a lawyer will usually initiate the process for a client. Congress regulates bankruptcy law. This is a constitutional and federal jurisdiction issue.
The issue of claiming bankruptcy deals with two main issues the discharge of the debt or the restructuring of the debt so it can be repaid. All types of bankruptcies fall into one of the two categories. There are six types of bankruptcy, each one handling a different type of financial situation. Generally when an individual goes through bankruptcy, he/she will also have to undergo a credit counseling session or sessions, to ensure that the person understand the important of financial responsibility and debt repayment. Bankruptcy is a tool to be used by businesses and individuals to regain some financial control back; however, it will stay as a stain or mark in the person's credit, damaging the credit for years. However, one advantage to this situation is that people who start the procedure to claim bankruptcy will automatically stop or halt the repossession of property, lawsuits, wage garnishment, eviction, and foreclosure, at least for a while.
The six types of bankruptcy are Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter 13, and Chapter 15. The most common are Chapter 7 and 13, and the ones used most by individuals. Chapter 7 is the simplest form of bankruptcy. Business and individuals can claim it, as long as they pass what is known as the "means test" - which proves that they do not have enough money to go through a debt repayment plan. However, some assets that are non-exempt must be liquidated to pay the unsecured debt due to creditors. This may include cars, clothes, household items, and other property. Most people are surprised by this fact and think that they can go through this type of bankruptcy keeping all their possessions. If a person cannot file Chapter 7, they may be able to file Chapter 13.
Chapter 13 applies to individuals who have a source of income and will be able to repay their debt by setting up a payment plan with all the creditors, must likely, a lawyer will handle this arrangement and how the funds will be distributed. The debt must be repaid in five years. However, the debtor is allowed to keep their possessions.
In Chapter 11, is used by corporation and businesses to prioritize and restructure debt into a payment plan that lets the entity stay in business while paying the debt. Some individuals with high debt may qualify for this type as well.
Chapter 9 establishes a federal tool to solve the municipal debt. For fishing or farming families there is Chapter 12, designed for their financial rehabilitation. Chapter 15 pertains to foreign debtors.
A Bankruptcy lawyer must help the individual and business determine which type of bankruptcy applies. For more information on this topic visit restartcentral.com.