What Are The Different Types Of Bankruptcy?
Before filing for bankruptcy it is important to learn about its different types. It is important to have knowledge about bankruptcy types in order to find your eligibility to file a certain bankruptcy type. Some of its types are not appropriate for some individuals.
Under personal bankruptcy come the chapter 7 and chapter 13 bankruptcy. Chapter 7 bankruptcy is also known as liquidation bankruptcy and chapter 13 bankruptcy is known as reorganization bankruptcy. Chapter 11 and chapter 12 are also two important types of bankruptcy.
Most of the individuals file bankruptcy under chapter 7 and chapter 13. In liquidation bankruptcy the assets of the debtor are divided among the creditors to repay the debt and become free of any unsecured debts. This is a short term plan and lasts for approximately six months.
Before filing for chapter 7 bankruptcy a mean test is taken which determines the debtor’s eligibility to file for bankruptcy plan. If the income of the debtor is equal or less than the median income of the similar size of household in the state then he can file for chapter 7 bankruptcy. If the income is greater than the median income and the person possesses some equity or property which is not covered by exempt completely and the person wishes to keep that property then he will have to file for chapter 13 bankruptcy. Under reorganization bankruptcy the debtor keeps the property and repays the debt over a longer period of time by making regular payments.
After the plan is made, the court either approves the plan or orders changes to the plan. The debtor must follow the approved plan by the court until all the debt has been repaid. However, in Chapter 13, a trustee is assigned to the debtor to help him in managing the accounts and make sure that the borrower follows it systematically as he had promised.
The other two types of bankruptcy include the chapter 11 and chapter 12 plans. Chapter 11 is a complex plan which needs the assistance of an attorney and this plan is for the business who wants to reorganize. Chapter 11 can be filed by individuals who have extremely large debts, and chapter 12 plans are for farmers only. This plan helps the farmer in repaying their debts over time.
These bankruptcy laws are made to help the debtors to pay off their debts and have a fresh start in their business. These laws prevent the debtors from creditor’s harassment also. According to the new bankruptcy law, known as Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the higher income earners are not eligible to file for chapter 7 bankruptcy plans, rather they have to file for chapter 13 plans and repay some of the portion of the debt.
According to the new law all the debtors have to attend credit counseling before filing bankruptcy case and they also have to get counseling before their debts are paid for personal financial management including budgeting and debt management.