Is there more than one kind of bankruptcy?
There are two classes of bankruptcy, Chapter 7 (liquidation) and Chapters 11, 12, or 13 (reorganization or debtor in possession). Chapter 7, 13, etc. are references to the sections of the federal code dealing with bankruptcy.
Under Chapter 7 bankruptcy, a person (consumer) or business asks the bankruptcy court to erase (discharge) the debts owed. This includes nearly every type of debt you can think of. Medical bills, credit card bills, and collection items can all be erased. In exchange for the discharge of debts, the debtor's excess assets or the nonexempt property belonging to the debtor is sold (liquidated), and a bankruptcy trustee distributes the proceeds to creditors. Most people who come to see me do not lose any property. Those few that do lose property are advised well ahead of time and choose to proceed anyway because the amount of debt they erase makes it worth it.
There are several types of reorganization bankruptcy. Consumers with secured debts under $871,550 and unsecured debts under $269,250 can file for Chapter 13. Family farmers can file for Chapter 12. Consumers with debts in excess of the Chapter 13 debt limits or businesses can file for Chapter 11. Chapter 13 is by far the most common reorganization bankruptcy. Reorganization is complex, time-consuming and should involve an attorney skilled in dealing with the process. In any reorganization bankruptcy, you file a plan with the bankruptcy court proposing how you will repay your creditors. Some debts must be repaid in full; others you pay only a percentage; others aren't paid at all. Some debts you have to pay with interest; some are paid at the beginning of your plan and some at the end.
Determining what type of bankruptcy fits your needs (if any) can be accomplished by meeting with an attorney skilled at analyzing your current financial situation. I offer a free consultation and would be happy to sit down with you and discuss your different options - just call my office for an appointment.
Courtesy of Amy Spencer-Martyn
Spencer-Martyn Law Offices
Redding, CA 96002
This information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.