The main goal of bankruptcy is to erase debt, so it can appear to be a viable option for someone who is drowning under a pile of payment collection notices. Bankruptcy has its pros and cons, which is why it is always advised as the last resort to solve a financial crisis. However, it is important to note that bankruptcy does not discharge all kinds of debt. For example, if your debt consists of unpaid child support, alimony, and student loans, bankruptcy is not for you because it cannot get rid of secured debts. Moreover, you may be subject to full or partial discharge, depending on your unique circumstances.
There are many different types of Bankruptcy Chapters; hence, the first step is to determine that which one is compatible with your situation. Bankruptcy Attorney in Jackson, CA, explains 6 different types of Bankruptcy Chapters:
1. Chapter 7
Chapter 7 is the most common and frequently sought after bankruptcy, since it entails complete discharge of unsecured debt (such as utility, medical, and credit card bills). This chapter is also referred to as ‘liquidation bankruptcy’, as the appointed bankruptcy trustee will sell your non-exempt assets to compensate creditors. Chapter 7 bankruptcy is the quickest, since it reaches completion within 3-6 months. In order to qualify for Chapter 7, you total income should be below the state’s median.
2. Chapter 13
Chapter 13, also known as reorganization bankruptcy, involves formulation of a payment plan that facilitates payment of debt. In most cases, the filer has to pay a portion of unsecured debt and all secured debt through manageable installments over an extended time period. Chapter 13 is suitable for individuals with high incomes, but it cannot be used for a business (except sole proprietorship). Chapter 13 typically lasts between 3-5 years, and it is recommended if you want to prevent liquidation of assets. This type of bankruptcy can also help stop a property foreclosure, though it may impose a strict budget that forbids any unnecessary spending.
3. Chapter 11
Chapter 11 is basically a business reorganization bankruptcy that allows a corporation to continue its operations, whilst paying off debts. The payment plan is similar to that of Chapter 13, but more large-scale for accommodating a big organization with greater amounts of debt. Chapter 11 is normally pursued by celebrities or renowned brand names who can bounce back from financial shortcomings because of their fame. These people own very high-value assets, or have several wealthy investors at their disposal.
4. Chapter 12
Chapter 12 is a bankruptcy that is only available to heavily indebted family farmers and fishermen. This bankruptcy helps them prevent a property foreclosure and liquidation of assets that are their source of livelihood. It establishes a payment plan, which is a lot more flexible than that approved by Chapter 13.
5. Chapter 15
If you owe money to individuals or organizations in foreign countries, you should refer to Chapter 15. This bankruptcy is specifically designed to deal with international bankruptcy issues. Foreign debtors are given access to U.S bankruptcy courts and vice versa.
6. Chapter 9
Chapter 9 bankruptcy is dedicated to municipalities. It provides reorganization opportunities for entire cities, towns, and school districts. They can work out a feasible payment plan and pay off debt with ease.