Today is Day 8 of 30 Day Credit Tips on 4 Types of Bankruptcy.
The four types of Bankruptcy are Chapter 7, 11, 12, & 13.
Let’s start with Chapter 7 which is known as straight bankruptcy or liquidation. With the exception of taxes, student loans, debt from fraud, embezzlement or larceny, most of the debt may be wiped out.
With recent changes in bankruptcy law it is harder to qualify for this type of bankruptcy also you may have to pay your auto loan and some of your old credit card debt.
A company can file a Chapter 7 in which the business is forced to close and all assets of the company are sold with the proceeds paid out to the creditors.
Chapter 11 is known as the “reorganization”. Companies in serious financial trouble may be forced to file for bankruptcy protection with a federal bankruptcy court.
This allows the company to keep operations open while the court structures a repayment plan with the company’s creditors.
The court will decide whether to relieve the company of all or part of it’s debt.
Chapter 12 is for the farming community only. This allows the farming family keep their land or property while their debts are reorganized through the bankruptcy court.
Designed as a response to difficulties suffered by farmers and fishermen in the 1980s, it is very similar to Chapter 13, but provides more flexibility in making periodic payments to take into account the seasonal nature of many farming or fishing operations.
Similar to Chapter 13, the farmer or fisherman proposes a repayment plan that lasts 3 to 5 years.
Chapter 13 is called “wage earner plan”. This allows an individual with a steady source of income to pay off his/her bills and keep their property under a court approved repayment plan.
Chapter 13 does not involve liquidation. Usually, a Chapter 13 debtor (that ‘s what we call people who file bankruptcy) is permitted to keep all of his property, whether it is exempt or not, as long as the Chapter 13 plan complies with the law.
Chapter 13 may also involve more expense than a Chapter 7 in terms of attorney’s fees, as the process is more complicated and drawn out.
Required Credit Counseling
Additional Note: If an individual decides to file for bankruptcy, he/she is required to take a credit counseling & debt management course by and approved court vendor 180 days prior to filing for bankruptcy.
The certificate of completion is required when filing.
Filing bankruptcy is considered a last resort so taking the course is a requirement in hopes the individual can work out a plan to repay his/her debt before filing for bankruptcy.
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