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from: Know Your Types Of Bankruptcy
Jenny Natix
Types Of Bankruptcy Depend On Individual's Situation
For individuals there are two types of bankruptcy including
Chapter 7 in which all of their debts are essentially eliminated
and Chapter 13, in which their debts are paid off over a
five-year period, supervised by a trustee of the court.
Businesses can use a Chapter 11 bankruptcy during which they can
reorganize their debt until it paid off or renegotiated in order
to remain in business until their financial house is back in
order.
An initial consultation with a bankruptcy attorney will help
determine which of the types of bankruptcy the individual
qualifies to file. There are certain tests administered to
determine if the individual qualifies to file Chapter 7 under
the new bankruptcy laws. Essentially, an income calculation will
determine if the person has a current monthly income, after
allowable expenses that is less than the average income in the
state in which they reside. If their income is higher than the
average, they will have to file for Chapter 13 bankruptcy.
In Chapter 7 bankruptcy, all debts, including secured and
unsecured can be discharged. However, some assets owned by the
individual may be confiscated and sold by the court in order to
satisfy a portion of the secured debt. Of the two types of
bankruptcy, Chapter 7 offers the most financial relief for the
creditor.
Paying Off Debt Over Time
If a person does not qualify for Chapter 7 bankruptcy, they
might consider a Chapter 13 plan, which requires making monthly
payment to a court trustee who then sends payments to all
creditors listed as part of the repayment plan. Of the two types
of bankruptcy this helps a person meet their financial
obligations while keeping creditor's from taking collection
actions against the debtor.
In the past, many people may have started out in Chapter 13
bankruptcy and found they were unable to meeting the obligation
and moved into Chapter 7. Under the new bankruptcy laws, which
went into effect in 2005, the choice between the two types of
bankruptcy is determined by the courts means test. If the person
has the means, current income level, to pay off their debts,
they are restricted to filing for Chapter 13.
On either of the types of bankruptcy, any assets or initial
payments will be directed to those creditors that have what is
considered priority access such as past due income taxes,
student loans and other government obligations. Payments to
unsecured creditors are made last in the line for recovering
money owed.
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