esm7i Bankruptcy Types that Can Be Filed in The United States
Bankruptcy can be a lifeline for individuals or companies in deep debt. It allows them to start over financially. Before filing, it is essential to consider bankruptcy’s adverse effects and drawbacks. Each chapter has a reason for being and a structure that addresses an individual’s or business’s debt and the next steps. Understanding the differences between the chapters will help you make the right decisions to navigate your bankruptcy successfully, whether you use an attorney or not.
Liquidation vs. Reorganization
In the United States, there are currently six chapters: Chapter 7, Chapter 8, Chapter 9, Chapter 10, Chapter 11, Chapter 12, and Chapter 13. The most common bankruptcy filings are Chapter 7 and Chapter 13.
There is a proposal called the Consumer Bankruptcy Reform Act of 2020 that proposes to replace Chapter 7 with Chapter 10, as well as two options. These options include a discharge without payment and a repayment plan specific to the debt. These options will be based on an individual’s financial ability based upon variables like annual income and assets and minimum payment obligations. Shortly, we’ll go into more detail about the CBRA.
Only Chapter 7 allows for the liquidation of debt. This is the most popular bankruptcy in the United States.
The remaining five chapters of bankruptcy focus on reorganizing the debt so that the debtor can repay all or a portion of it.
How each bankruptcy chapter works
Chapter 7 bankruptcy, also known as liquidation or straight bankruptcy, allows people to wipe out their debt completely. To eliminate your debt, you must give up any property not exempt from the amount owed. The filer can keep exempt property. Exempt property can include items necessary to maintain a high standard of living, such as clothing, motor vehicles, homes, up to a certain amount, and other items. Exempt property is less likely to include vacation homes, recreational items, collectibles, and some investments.
Speak to a bankruptcy lawyer in your locality for more information on exemptions.
Chapter 9 bankruptcy is designed for municipalities. (Counties, towns and cities, school districts, or boroughs, for example) It creates a plan to adjust and pay municipal debts under modified terms. This allows for a longer repayment period than the original obligation. Chapter 9 bankruptcy filings in the United States are rare. In 2019, only six cases were filed.
Chapter 11 bankruptcy is a reorganization bankruptcy that can be used by businesses or individuals who have unusually high debt. The debtor proposes a reorganized debt repayment plan that allows the business to stay open and repay creditors over a longer period.
Chapter 12 was created to protect family farmers and fishermen from financial hardships during debt restructuring.
Chapter 13 is also known as the wage earner plan. It allows people with a regular and consistent income to develop a plan for repaying their debts in full or partly over three to five years. People who file Chapter 13 petitions can keep their homes out of foreclosure, unlike those who file a Chapter 7 petition.
Chapter 15 is a new addition to the United States Bankruptcy Code, added in 2005. It was designed to assist cases that involve multiple countries. Chapter 15’s primary goal is to promote cooperation between foreign courts or debtors and US courts. A debtor with assets and debts in several countries will most likely file Chapter 15 if they have debts and assets in multiple countries.
What type of bankruptcy is right for you
We recommend speaking with an experienced bankruptcy lawyer if you are interested in filing for bankruptcy. The bankruptcy process can be confusing for many people, especially because of the unfamiliar terminology and the legal implications outside the normal scope of their day-to-day lives.
Your income and assets will determine the bankruptcy chapter you choose. A person with a high income will likely be unable to file Chapter 7. A person who doesn’t wish to lose the property they would otherwise lose if they filed for Chapter 7 might consider filing Chapter 13 instead.
Speaking with an attorney before deciding which chapter to use when filing for bankruptcy is a smart and prudent choice.
You can represent yourself if you cannot afford an attorney. You don’t have to hire an attorney to file for bankruptcy. Instead, you can represent yourself. We recommend that, whichever choice you choose, you actively learn about the bankruptcy process and how it could help you. You can use the information you gain during bankruptcy to avoid future debt problems.
