How the Chapters of Bankruptcy Differ
Bankruptcy - How the Chapters of Bankruptcy Differ
Bankruptcy is a complicated area of the legal system. The bottom line is that bankruptcy help permits you to have a fresh start on your personal or corporate financial affairs. There are many different types or chapters of the United States bankruptcy code. What follows is a brief overview of the primary three types that private citizens and business owners alike typically choose to file. Keep in mind that no type of debt relief will cure future debts.
Chapter 7 can apply to business or personal bankruptcy. Basically, this type of bankruptcy help permanently eradicates most of your debts.
In personal Chapter 7, a court trustee will sell many of your assets and distribute the proceeds among creditors. In business Chapter 7, a trustee will sell all of your corporate assets and use any funds to help pay your company's debts.
Chapter 7 is not for everyone. A business owner must be willing to close his company to qualify. An individual with personal debt problems must prove that he cannot repay his debts and cover basic living expenses.
Chapter 11 is a business-oriented type of bankruptcy help. Basically, an entrepreneur is asking the court to reduce his debt load but to allow him to continue running his business. Chapter 11 is commonly called restructuring. A judge or court trustee must approve all major business decisions especially concerning the sale of any assets. While business Chapter 7 effectively puts a company out of business, Chapter 11 allows an entrepreneur the chance to reorganize his professional operations.
However, not every company successfully emerges from this type of bankruptcy help. Some company owners must convert their cases to Chapter 7 and let go of their business. They can try to form a new company in the future, but will be freed of any debts related to their former business.
Chapter 13 is only suited for personal debts. It is a partial debt repayment plan. A judge or court trustee reduces a person's debts. It usually takes 3 to 5 years for a consumer to complete this type of bankruptcy help. While a private citizen is repaying his bills under Chapter 13, he cannot open any new credit accounts without special permission. The fact that someone asked for Chapter 13 bankruptcy help will damage his credit rating for 7 years as opposed to 10 years in a personal Chapter 7 case.