Types Of Bankruptcy

If you are looking for information about the different types of bankruptcy, this post should help

Understanding Chapter 7 Bankruptcy

In Chapter 7 bankruptcy you will do the following:

• Pay your secured debts or relinquish proeprty to be liquidized and the proceeds go to pay your secured debts.
• Non-exempt proeprty is surrendered so as much of your debt can be satisfied as possible.
• You keep possession of other exempt property and are released from the accrued obligations from the remaining debt that is dischargeable.

In Chapter 7 bankruptcy is a good option if you do not have the income or the assets to pay off at least part of your debts. A formula is used and if your income exceeds a certain level, you will need to file Chapter 13 Bankruptcy.

Learn more about Chapter 7 Bankruptcy

Understanding Chapter 13 Bankruptcy

In Chapter 13 Bankruptcy you will do one (or maybe a combination of) the following:

• Rid yourself of multiple debts so payments can be managed.
• Taking into account your income, restructure existing debt payments to make them more manageable for your personal circumstances.

The two most important considerations the judge and the Trustee will take into account when they make a decision to accept your proposed bankruptcy plan are:

• Will each creditor receive at the very least as much revenue if you  had filed a Chapter 7 bankruptcy?
• Whether all creditors are being treated with a degree of fairness?

In Chapter 13 bankruptcy, the goal is usually to get your creditors to agree with a plan of action. They may try to get their money faster or obtain more money from you. Creditors do not have to agree with your plan but it will influence the judge and Trustee more favorable if they will agree. Regardless of whether they agree or not, the judge may approve the plan so long as the judge determines the creditors are being treated equally and they will obtain at a minimum, the same amount as they would have been paid under Chapter 7 bankruptcy.

Learn more about Chapter 13 Bankruptcy

Deciding The Correct Type Of Bankruptcy

Ultimately your bankruptcy filing will come down to just two things, income and assets.

Your income may prevent you from going through Chapter 7 bankruptcy, not to mention the high risk of losing most of your assets in this form of bankruptcy – however, assets that can be protected in Chapter 13 bankruptcy.

Let’s look at some scenarios where Chapter 7 or Chapter 13 bankruptcy are the best options.

Chapter 7 Bankruptcy – An Unemployed Debtor With Few Assets

In a situation where the debtor has no current income aside from unemployment benefits and has a single car with a loan against it and does not own a home or any other property – Chapter 7 bankruptcy is by far the quickest and efficient means of eliminating debt. This case is so common it is frequently known as a “no asset bankruptcy.”

Chapter 7 Bankruptcy – An Unemployed Homeowner With An Upsidedown Mortgage

If you are a homeowner and the value of your property is now below the value of the loan on the property, Chapter 7 bankruptcy may still be the best option. As the lien will have greater value than the property, the homeowner has zero equity in the estate of the bankruptcy – the house is protected from the risks of liquidation.

Chapter 7 Or Chapter 13 Bankruptcy – An Unemployed Homeowner With Significant Equity

Chapter 7 bankruptcy may not be best for an unemployed homeowner who has large amounts of equity in their property. In chapter 7 bankruptcy, the homeowner may lose their home. But if they keep up the mortgage payments, the homeowner can maintain their home in a Chapter 13 bankruptcy. However, the petitioning household must demonstrate they have enough income to fund a debt payment plan.

Chapter 13 – Homeowners Confronting Foreclosure or Mortgage Delinquency

Chapter 13 bankruptcy gives homeowners who are behind on their mortgages a method of catching up mortgage payments that are past due and at the same time ridding themselves of part of their dischargeable debt. This way it is possible to ensure their home is safe from foreclosure and get rid of medical debt, 2nd or 3rd mortgages and credit card debt. There is not a way to make up mortgage arrears in Chapter 7 bankruptcy.

Chapter 11 – Wealthy Pensioners With A Large Accumulation of Debt

It is very often the case wealthy debtors have to file under Chapter 11 bankruptcy simply because there are limits to the income and debt levels in Chapter 13 and Chapter 7 bankruptcies.

Sources

1. “Types of Bankruptcy.” Legalzoom.com, 30 Sept. 2015, www.legalzoom.com/knowledge/bankruptcy/topic/types-of-bankruptcy.
2. Nolo. “Which Type of Bankruptcy Should You File? Chapter 7 vs. 13.” Www.alllaw.com, Nolo, 12 Mar. 2019, www.alllaw.com/articles/nolo/bankruptcy/which-type-chapter-7-chapter-13.html.