Which Type of Bankruptcy Is Right for You?

The Types of BankruptcyNot all bankruptcies are the same. The United States Bankruptcy Code is divided into different chapters. Some chapters may not apply to your situation, but, often, more than one chapter will apply to your situation. Therefore, it is important to know who is eligible for bankruptcy relief under specific chapters, how the process works for those chapters, and what the outcome of a bankruptcy case may be when you file pursuant to a specific chapter.

Chapter 7: Liquidation Bankruptcy

Individual debtors and business debtors may be eligible for Chapter 7 bankruptcy relief. When you file for Chapter 7 relief, a trustee will be appointed to your case. The trustee will gather your non-exempt assets and sell them. The cash will then be divided among your creditors according to the priority of their credit claim.

As an individual, you may receive a discharge of debts once the process is complete. Any debts that can be discharged will be considered paid in full and creditors will have no further claim against you. The purpose of this type of bankruptcy is to give you a fresh start. Businesses, however, cannot receive a similar discharge.

Chapter 11: Reorganization Bankruptcy

An individual or business may be eligible for a Chapter 11 bankruptcy claim. Unlike a Chapter 7 case, a trustee will not be appointed when you file a Chapter 11 case. Instead, you will remain in control of your business or property and you will submit a plan of reorganization to the Bankruptcy Court. While you are restructuring or reorganizing, your creditors cannot continue their collection efforts. Your creditors will then vote on your reorganization plan and the plan will need to be approved by the court. Once it has been approved by the court, you will need to repay your creditors according to the court-approved plan.

Chapter 12: Family Farmer or Family Fisherman Debt Adjustment Bankruptcy

As the name of this chapter suggests, this type of bankruptcy is available for family farmers and family fishermen. The goal of this chapter of the Bankruptcy Code is to allow family farmers and fishermen to restructure their debts while keeping their farms and businesses. Family farmers and fishermen will be required to pay their creditors what the court determines to be a reasonable amount as defined in a court-approved repayment plan. While the case is pending and until a discharge is obtained, a trustee will be appointed, but in most cases, the family farmer or fisherman will remain in control of his property and business.

The repayment plan will require payments over the next three to five years. At the completion of the repayment period, the family farmer or fisherman will receive a discharge of applicable debts.

Chapter 13: Individual Wage Earner Bankruptcy

Chapter 13 bankruptcy is available to individuals who earn a regular income and to owners of small businesses if they are sole proprietors. Unlike Chapter 7 which requires you to liquidate non-exempt assets, you are permitted to keep your property in a Chapter 13 bankruptcy case. Instead of selling your property to satisfy your debts, you will file a repayment plan with the court. Once the repayment plan is approved, you will pay your debts according to the terms of that plan over the course of three to five years. At the completion of the repayment period, you may obtain a discharge of the debts that were included in the plan.

Other chapters, such as Chapter 9 for municipal bankruptcies, also exist in the Bankruptcy Code.

Contact a Lawyer for Bankruptcy Help

A lawyer can help you decide which bankruptcy chapter is right for you. Each chapter is complicated and each chapter has its pros and cons that should be considered before you file your bankruptcy case.

To learn more about which type of bankruptcy is right for you, please contact our experienced bankruptcy lawyers today. We would be pleased to provide you with a free, no-obligation consultation so that you can make an informed decision about what to do next. Simply call us or contact us via this website at your convenience to learn more.