It seems that I’ve been on a bit of a bankruptcy kick for a while – and you’re right, I have. It’s an important subject to talk about because there are a lot of people out there in dire straits and bankruptcy may be an only option for them. Instead of just talking about finding bankruptcy attorneys and what you can do if you want to be a successful bankruptcy attorney, I figured I’d actually talk about your options. Here we go!
There are technically more than three kinds of bankruptcy out there, but the chances of you qualifying for the other kinds are so remote that I’m not going to waste your time and my time talking about them. The three kinds I’m talking about are Chapter 7 bankruptcy, Chapter 11 bankruptcy, and Chapter 13 bankruptcy. These are the ones that most people would find themselves going through if the need arises.
Chapter 7 Bankruptcy Explained
Chapter 7 bankruptcy is the route that most people go. It is described by most as “straight bankrupcty.” This is the kind you use when you just want to wipe out as much debt as you can. This is also the simplest and quickest way to reduce your debts.
In Chapter 7, a debtor basically gives up all of his property to someone that controls it (known as a trustee), who distributes what is allowed to be distributed to pay off debts and then wipes out everything else.
Some debts cannot be extinguished with a Chapter 7 filing, including spousal and child support, student loans, some taxes, and some other kinds of debts. So, if you want to try to get rid of that huge student loan you just accumulated, you’re out of luck.
Chapter 13 Bankruptcy Explained
Chapter 13 is set up for the person that has some regular income but has accumulated so much debt that they just can’t handle it any more (though the debt can only reach a certain amount to qualify under this chapter). The idea behind Chapter 13 is to stop the interest from accumulating, create a payment plan for the creditors, and stretch that plan out three to five years to pay off those debts. What the debtor gets in return is a lowering of the debt obligation.
In this plan, there is a little more pressure put on you, the debtor, because you have the obligation to repay your debts according to the plan that are laid out. If you don’t pay as you agreed the debts you incurred do not go away – the bankruptcy is dismissed and you’re still on the hook for your obligations.
What’s great about Chapter 13 bankruptcy is that you get to keep all of your property – you don’t have to give everything up like you do in Chapter 7. That’s offset by the requirement to stick to the payment plan, but for some, it’s worth it.
Chapter 11 Bankruptcy Explained – the Business Bankruptcy
Chapter 11 is a tool set up to allow businesses that have found themselves in financial trouble to reorganize their debts to return the business to profitability. This is the medium you typically hear about when a big business starts to go under and needs to be saved (lately think Barnes and Noble or K-Mart).
Through Chapter 11 a plan is set up that creditors must approve. What typically happens here is the creditors realize if the business goes under they may lose all of their money owed, so they are willing to take less money (say 75% of what they are owned) in order to get paid.
There you have it, a little bit of information on bankruptcy law. If you have questions, please let us know. If you have comments, please share them. We’d love to hear from you!