Types Of Bankruptcy
Bankruptcy is no laughing matter; in fact, it’s a serious legal process. It can remain on your credit report for up to ten years and can cause serious ramifications in your life, both emotional and financial. Individuals that are considering filing for this proceeding must understand it completely. This entails that they know the consequences and the different types available.
There are many types of bankruptcy. Personal types include Chapter 7, Chapter 13, Chapter 11, or Chapter 15. Further, you can file as an individual or married couple, although you don’t always have to file together with your spouse.
Understanding types of bankruptcy can be your key to making the smartest financial decisions for yourself and your family. Keep reading to learn more.
The most common types include:
- Chapter 7: This is the most common type. It includes the liquidation of an individual’s property which is then distributed to creditors. You may be allowed to keep certain exempt property
- Chapter 11: This form constitutes a reorganization of a debtor’s arrears, assets, and business dealings, so long as the debtor fulfills all obligations. This type gives the individual a fresh start
- Chapter 13: This is the second most common type filed by individuals. It involves a repayment plan that typically pays a portion of the total debt. To qualify, the debtor’s secured debt and unsecured debt may not surpass a specified amount
- Chapter 15: The main point of this type is to bridge a way for cooperation between United States courts, a foreign debtor, and foreign courts
All other types tend to focus more on businesses. For example, Chapter 10 pertains to corporations, Chapter 12 applies to family farms or fisheries, and Chapter 9 is aimed toward financially distressed municipalities.
Who Can File For Bankruptcy?
An Individual’s finances may collapse because of poor financial planning or bad luck. The court system has devised a method to help these individuals get back on their feet.
Bankruptcy is an official court proceeding. A judge and court trustee are appointed to examine all of the individual’s (or business’s) assets and arrears. The court then decides if you’re eligible to file. The court is responsible for deciding whether to discharge the individual’s arrears. It also determines who’s exempt from a legal requirement to pay outstanding debts.
The main qualification for filing is to have racked up an amount of arrears that can’t reasonably be paid off.
What Are The Risks For Filing For Bankruptcy?
The risks for filing can be quite serious and long-lasting. These include:
- Damage to your credit report and credit history. It’ll stay on your credit report for ten years. This makes it nearly impossible for you to get a house, lease a car, or do many other important things
- This process tends to come with feelings of shame and failure. It becomes a public record that you have a hard time keeping your financial status under wraps
- Depending on the type that you file for, you might lose important assets like your home and your car
- While all your arrears might be cleared, you also stand to lose everything. This can be quite traumatic. Moreover, it’s difficult to start from scratch again
Consequences Of Filing For Bankruptcy
This legal proceeding isn’t a magic band-aid that you can put on your finances and watch them all slip away. In fact, it’s quite the opposite. The effects of it may follow you around for a long time. Additionally, depending on the type that you file for, you may still be obligated to pay a certain debt, loan, or even taxes.
Ways To Avoid Bankruptcy
Every step should be taken to try and avoid this process. If you sense your financial situation is becoming dire, reach out to a financial advisor to try and see if you can get back on track. It’s also possible to negotiate with creditors. Make sure that you exhaust every possibility. With some careful planning and a strict plan, you might be able to avoid this legal proceeding.
Read more: Why Do People Go Bankrupt?
Different types of bankruptcy exist in different financial situations. Individuals most often file for Chapter 7 or Chapter 13, though it really depends on their status, types of existing arrears, and other factors. Take care to pursue healthy financial practices so that you can avoid the serious consequences of bankruptcy.