When debts get out of hand, debtors often seek bankruptcy as a means of getting them under control. There are six different types of bankruptcy available, but all of them allow one of two methods of controlling debt: either discharging or restructuring. Discharging means that the filer’s assets are sold and a portion of the debts are paid off, with the rest of the balance being charged off. Restructuring involves a repayment plan that is agreed to by the creditors. The type of bankruptcy filed generally depends on the situation, who is filing, and the circumstances surrounding the filing.
Chapter 7
Chapter 7 bankruptcy is available to both individuals and businesses, and is a liquidation of assets. This process has exemptions as to what property is sold in an effort to pay off the debts. Your filing is handled by a court-appointed bankruptcy trustee who attempts to collect as much as possible from non-exempt assets in order to pay the creditors. The remaining balance is then charged off. This type of bankruptcy is available to those who have undergone credit counseling, have not had a discharge within six to eight years, and whose income to debt ratio precludes a Chapter 13 filing.
Chapter 11
This is a reorganization bankruptcy that provides a means of restructuring debt so that the payments can be managed more easily. Debtors are not required to surrender assets, which is why many organizations choose this option. They will not have to shut down, and can still function at full capacity while making their payments. Instead, they have to develop a plan that will prevent the same thing from happening again. Chapter 11 is the most complex and is in place for small businesses that are LLCs, corporations, or partnerships, and for those who don’t qualify for Chapter 13.
Chapter 12
Chapter 12 bankruptcy is for those considered family fishermen and family farmers. Under this law, which is designed specifically to address the needs of those whose income is generated by commercial farming and fishing, the debtors develop a plan that will allow them to pay off creditors over a three to five year period. If the debtor misses payments, the bankruptcy will be dismissed, or converted to a Chapter 7 liquidation.
Chapter 13
Chapter 13 bankruptcy is the most common debt relief option, and allows debtors that have a stable source of income to develop a repayment plan. The plan will last from three to five years, and allows for the debtor to keep all assets. In order to file Chapter 13, secured debt is capped at $1,149,525, and unsecured is capped at $383,175. Those filing will also have to undergo credit counseling.
Chapter 9
Chapter 9 is a federal option designed for municipalities.
Bankruptcy is never as easy decision, and it is one that will have an effect on your credit for several years. If you are considering debt relief to get a handle on the bills you owe, contact a bankruptcy attorney in Las Vegas for more information.
