Types of Bankruptcies
Chapter 7, Chapter 11, Chapter 13
What Types of Bankruptcies are There?
There are three types of bankruptcy protection provided by federal law. Chapter 7 bankruptcy is by far the most common and is generally acceptable for an individual who needs to be discharged from their debt but wants to keep some of their assets such as their home or their car. Chapter 11 is designed for a business and sometimes individuals who want to maintain total control of assets while trying to get back up on their feet. The company will work with the court to establish a payment plan that can be agreed upon by creditors and the courts. This repayment schedule can help the company reorganize over time while maintaining their source of income intact. A Chapter 13 bankruptcy will allow an individual with a regular source of income to maintain their assets as long as they pay a portion of their earnings to their creditors. The time frame and repayment amount will depend on the value of their assets and the equity that is held in them as well as their expenses and income level. Once the payment plan has been completed, the debtor can be discharged. This usually takes somewhere between 3 and 5 years to complete.
Each Bankruptcy Type has Pros and Cons
Chapter 7 Bankruptcy
Chapter 7 bankruptcies are used by individuals, couples or corporations who desire to eliminate unsecured debts. These are the types of debts for which there was no collateral. Examples include medical bills, judgments, personal loans and credit card debts. One reason that Chapter 7 is declared in many cases is because it allows the individual to keep some of their property; but they will have to be sure to reaffirm the debts that they wish to keep. This type of bankruptcy can be discussed with a bankruptcy attorney in NJ in order to see if a chapter 7 bankruptcy is right for you.
If a person is considering declaring Chapter 7 bankruptcy it is important to speak with a bankruptcy attorney in NJ. They can explain why this form can be more beneficial to the debtor. One reason a lot of people in financial difficulties choose to go this route is because they can eliminate debt and obtain a chance for a brand new start without losing possession of their home or car. By reaffirming the debts they wish to keep they can continue paying on a mortgage or car payments but release them from other forms of debt. Another advantage to filing Chapter 7 is that it ends the harassment by creditors. When the debtor begins the proceedings for filing bankruptcy, the creditors are forbidden from contacting debtors through any means. And another advantage from filing Chapter 7 is that any garnishments must stop. It is also the quickest way as well as the least expensive option to discharge debts.
Chapter 11 Bankruptcy
A Chapter 11 Bankruptcy is usually filed by a company in cases where the value of the liquidation of assets would be lower than the revenues that they would bring in over the long term. By filing a Chapter 11 they will ensure that the creditors are more likely to recoup higher amounts than would be possible if the company liquidated assets. When a company creates a reorganization plan they also generate a payment plan. This means that the company becomes a “debtor in possession” since they maintain the ownership of the business as well as the assets. They continue to pursue the regular business operations.
Filing A Chapter 11 Bankruptcy
A company that declares Chapter 11 bankruptcy has to make a full discloser of all their assets as well as all of their debts which they are looking for protection from. This disclosure will give their creditors the “right to question the debtor.” The creditors and debtor will have meetings to discuss the terms of the reorganization plan. The disclosure will have to provide an adequate amount of information so that creditors will be able to make a knowledgeable decision about whether a company reorganization is reasonable and likely to be successful. The disclosure statement will have to be approved by the court and creditors for the bankruptcy to proceed.
Chapter 13 Bankruptcy
When an individual files a Chapter 13 bankruptcy, they will need to develop a repayment plan in which they describe how they will repay creditors over a 3-5 year time frame. Some of the debts will be reduced to substantially smaller amounts and others will be paid off in their entirety. A Chapter 13 bankruptcy can be very beneficial and help an individual avoid a foreclosure on their house, make up some missed payments on a house or car, pay off back taxes or keep a tax debt from accruing any more interest as well as many other financial benefits.
The important thing about filing a Chapter 13 is to make sure the payment schedule is adhered to. This way the debts will be released at the end of the proposed plan. Several factors will be considered when determining the amounts each creditor is to be repaid. This includes things like how much disposable income the debtor has to work with. The only stipulation for filing a Chapter 13 is to have a “regular” source of income and some disposable income that can be paid toward the payment plan that is decided upon in the proceedings. A bankruptcy attorney in NJ can help individuals work out all the details pertaining to the bankruptcy and repayment plan.
Benefits of a Chapter 13 Bankruptcy
An individual may choose to file a Chapter 13 bankruptcy for a variety of reasons. One reason that it is a popular choice is that they get to determine their own repayment schedule. They also get to keep all of their property whether it would be considered exempt or non-exempt. Chapter 13 is different from a Chapter 7 in that the debts are not simply cancelled out, however many of them are reduced significantly to work within the repayment plan. As long as the individual continues to pay their proposed payments on time, their home is protected from foreclosure. There is also more time allowed to repay debts such as back child support and taxes which cannot be discharged under other bankruptcies. An individual can file a chapter 13 as often as they desire and one can be filed at any time. Creditors are classified in the repayment plan and receive proportional payments. Filing for a Chapter 13 allows an individual to protect any co-signers who will be immune from being contacted by creditors as well.