Bankruptcy is a dreaded word you don’t want to think about! But unfortunately, in certain cases, declaring bankruptcy is the only option to save you from a financial crisis.
What is bankruptcy?
A debtor declares himself bankrupt and files a petition that he cannot repay his debts. The assets of the debtor are evaluated and are used to repay some portion of the debt. The debtor could be an individual or an organization.
Bankruptcy offers debtors freedom from their debts. It also facilitates repayment opportunities to the creditors. Bankruptcy comes under the purview of federal law. Bankruptcy rules are listed in the US Bankruptcy Code. The code specifies different types of bankruptcies.
Although declaring bankruptcy helps the debtor get freedom for his loans, it impacts him negatively in the long run. This is because the debtor loses credibility, their credit score dips and they will find it difficult to get loans in the future.
The federal court decides whether the bankruptcy declared by the debtor is justified or not. The case is presented in front of the judge of a federal court who declares the outcome of the case.
The US bankruptcy code defines different types of bankruptcies based on the covenants of the case.
Chapter 7 Bankruptcy
This pertains to liquidation. A court-appointed trustee oversees the assets of the debtor. He manages the sale of these assets to repay the creditors. However, most bankruptcy cases are no-asset cases which implies that the debtor does not own any assets with value that can be sold.
Certain debts like unpaid medical bills, and credit card bills are waived. However, liquidation does not take care of many other types of debts such as government debts such as taxes, fines, etc., student loans, alimony, and more.
Chapter 13 Bankruptcy
According to Chapter 13 Bankruptcy code, the debtor is allowed a monthly payment plan by the court wherein they can repay a portion of their unsecured debt and all of their secured debt over 3-5 years.
The monthly payments are determined based on the income of the debtor and the amount of debt. In addition to this, the court keeps a close watch on your spending and puts restrictions on it.
The assets of the debtor are not sold and they can catch up on any debt that is not bankrupt able.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy allows the debtor to make a repayment plan of how they are going to repay their creditors. This plan is presented before the court and both the court and creditors must agree to the plan.
Chapter 12 Bankruptcy
This is similar to Chapter 13. However, it is more flexible. This code is valid for farmers, fishermen, and families. According to this code, the debtors need not sell all their assets and can repay the debt over a limited period.
Chapter 15 Bankruptcy
This code pertains to international debts. This code provides access to foreign debtors to US bankruptcy courts.
Chapter 9 Bankruptcy
Chapter 9 is relevant to school districts, towns, cities, etc. This code allows them to reorganize their debts and make a repayment plan.
Whether you can file for bankruptcy or what type of bankruptcy you can file are difficult questions to answer.
Consult the bankruptcy lawyers at Ward K Johnson Law Firm to manage bankruptcy issues.