There are many different types of Bankruptcy under Bankruptcy Law that are designed and structured to assist an individual or corporation that is financially burdened by debts in different ways. The most common types of bankruptcy are a Bankruptcy Chapter 7 and a Bankruptcy Chapter 13.
A Bankruptcy Chapter 7 can be filed by either an individual or a corporation. The essential gist of filing bankruptcy under this chapter is a means to discharge or eliminate debt. Most debt can be eliminated by filing for bankruptcy in a bankruptcy chapter 7, however child support, certain taxes, secured loans and student loans may not be discharged.
The benefit to file for bankruptcy under this chapter is the debtor receives a “fresh start”. The disadvantage of a Bankruptcy Chapter 7 is some of the debtors assets may be taken by the court and liquidated to pay off the debtors creditors. Depending upon the state where you are filing bankruptcy, under this chapter there are dollar amounts and certain specifically defined property you can retain. It is essential to consult a bankruptcy lawyer that practices in the state in which you are intending to file for bankruptcy to inquire about the allowable exemptions in that state.
A Bankruptcy Chapter 13 is sometimes referred to as a reorganization plan. Filing for bankruptcy by way of a Bankruptcy Chapter 13 entitles the debtor, who has income, to pay off some or all of their debt over time. Usually a bankruptcy payment plan for a period of three to five years is agreed upon. Generally payments are made to a trustee that in turn distributes the funds as per the reorganization plan agreed upon through the bankruptcy. The benefits of a Bankruptcy Chapter 13 is the debtor is usually able to keep their assets. The disadvantage is the debtor does not get a “fresh start” as in filing bankruptcy under chapter 7.
It should be noted that these are just the basic principles to file bankruptcy under these two chapters. To truly understand how to file bankruptcy under the appropriate chapter, the services of a professional bankruptcy attorney are invaluable. Only bankruptcy attorneys can guide you through the perils of filing for bankruptcy under the current US bankruptcy law.