What is Bankruptcy? The Six Bankruptcy Chapters Explained

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Chapter 7 Bankruptcy- https://www.legalchiefs.com/blog/what...

Chapter 11 Bankruptcy- https://www.legalchiefs.com/blog/what...

Chapter 13 Bankruptcy- https://www.legalchiefs.com/blog/what...


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What Is Bankruptcy?

Bankruptcy is the legal process by which federal bankruptcy courts help individuals and businesses eliminate all or part of their outstanding debts and repay a portion of what they owe.

It is good to know that not all bankruptcies are created equal. Some are more suitable for individuals, and others are intended to help businesses and large organizations. There are six types of bankruptcy chapters in U.S. legislature. A chapter is a section of the Bankruptcy Code where the specific law is found. Let’s take a closer look at each of the six types.

Chapter 7 Bankruptcy: Liquidation
Also known as straight bankruptcy, Chapter 7 is the most common type of bankruptcy filed by individuals. The process consists of a court-appointed trustee who oversees the sale of your assets to pay off the people you owe money to. If there is any remaining unsecured debt, it is typically erased. However, Chapter 7 bankruptcy doesn’t cover all types of debt, such as taxes and student loans.

An important note here is that you can only file for Chapter 7 bankruptcy if the court decides that you’re incapable of paying back your debt. In other words, if your income is below the state average, the court will most likely allow you to file under this chapter. Keep in mind that a Chapter 7 bankruptcy will stay on your credit report for ten years, and you can’t file for it again in the next eight years.

Chapter 13 Bankruptcy
Anyone can file for this type of bankruptcy if their secured debt is less than $1,257,850 and their unsecured debt is less than $419,275. Instead of forgiving your debt like Chapter 7 does, Chapter 13 reorganizes it. In this case, the court will approve a monthly payment plan for you to pay back your secured debt, and a portion of your unsecured debt for a period of three to five years. The amount of your monthly payment will depend on your income and amount of debt.

Chapter 11 Bankruptcy
In most cases, Chapter 11 is used by businesses and corporations. They will typically come up with a plan to continue operating the business while paying off their debt. Both the creditors and the court must approve this plan.

Chapter 12 Bankruptcy
This type of bankruptcy is suitable for family farmers and fishermen who want to avoid foreclosure on their property or selling all of their assets. It includes a payment plan that, unlike Chapters 12 and 13, has higher debt limits and is generally more flexible.

Chapter 15 Bankruptcy
Chapter 15 bankruptcy deals with foreign debtors and international bankruptcy issues. Chapter 15 allows foreign nationals who have assets, business, or property in the U.S. to file for bankruptcy in the country.

Chapter 9 Bankruptcy
Chapter 9 Bankruptcy is intended to help towns, cities, school districts, municipalities, etc. to reorganize their debt and set up a repayment plan to pay back what they owe. Under this chapter, municipalities earn protection from creditors while they set up the repayment plan.

Hopefully, this video has helped clear up any questions that you have about the different types of bankruptcy.

If you still have some questions, there are links in the bio to this full article and to other articles containing more information about each specific type of Bankruptcy.

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