What Are the Common Types of Bankruptcy?

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What happens if you are at a point in life where you have to consider bankruptcy? This may be a difficult time for you, but know that there are different types of bankruptcy that you can file to suit your situation. 

If you are in a position where you need debt relief, this article will break down how declaring bankruptcy actually works. 

Different Types of Bankruptcy

You can file for personal bankruptcy (as an individual) or file for bankruptcy for your company. These are the most common types of bankruptcy that will apply to different situations.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy will involve the liquidation of your nonexempt assets in order to repay debts. It will be the task of the bankruptcy court to determine which assets can be used to pay off your creditors, and the standards around this will usually differ based on state.

Often, nonexempt assets can include properties you don’t live in, expensive clothes, jewelry, and even some forms of investment. It is useful to have a bankruptcy attorney by your side through the proceedings to ensure you receive fair treatment and submit accurate information to the court.

The positive aspect of Chapter 7 bankruptcy is that you won’t need a repayment plan. The court will approve your request to file for Chapter 7 only if they believe you don’t have enough income to fulfill a repayment process to your creditors. To be eligible, you will have to make an income that is less than your state’s median income.

Chapter 9 Bankruptcy

Chapter 9 bankruptcy is only relevant for municipalities that have trouble with supporting themselves financially. Municipalities here refer to school districts, towns, counties, and other government bodies. Filing for bankruptcy will then provide protection for the struggling entity, while allowing them some time to reorganize their systems and finances in order to repay their creditors.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is yet another option for getting out of debt and is applicable for both individuals and companies. You will have to reorganize your assets and business structure in order to fulfill this process. For instance, you may have to reduce the size of your company in order to stop draining your finances as much or to start repaying creditors.

Declaring bankruptcy this way can involve a lot of work and time on your part.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows you a three to five-year repayment plan to settle your debts. The length of time – as well as the amount you have to pay regularly – will be decided by a trustee. This bankruptcy alternative will not use your assets in order to repay debts, which may be your preference!

The good news is that once the court approves your bankruptcy filing, you may see some debts being discharged.

Your Bankruptcy Options 

There are different types of bankruptcy you can file for, and they will depend on your preferences and financial state. The positive aspect is that they will all enable you to start over with a clean slate!

Check out more interesting tips on our blog.

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