Olympia Law PC on Types of Bankruptcies
Olympia Law, PC is a law firm that has extensive experience in bankruptcy cases. Kindly read on to learn more about the different types of bankruptcies.
When people hear the term “bankruptcy,” they all think it has something to do with being broke. Simply put, bankruptcy is when you can’t pay your bills and you’re being hounded by creditors. On a more technical definition, bankruptcy is a legal process where the courts step in to relieve burdensome debts. While court cases are usually heard in civil or criminal court, bankruptcy has a dedicated system of courts throughout the country. In most cases, declaring bankruptcy is voluntary. However, some creditors can make the company or person who owes money go into bankruptcy. Before you file for individual or company bankruptcy, here are the different types of bankruptcies under the US Bankruptcy Code:
Chapter 7. This bankruptcy type is also called “Liquidation” since most of the debtor’s assets are sold for cash, or “liquidated;” and used to pay creditors. Not all assets can be liquidated and there are limits to some of them. See bankruptcy exemptions for this chapter for more information..
Changes to the Bankruptcy Code in 2005 included the requirement of a “means test” to determine eligibility for personal bankruptcy under Chapter 7. The test checks whether the debtor has too much income for this type of filing. Once Chapter 7 is filed, your assets are taken over by a court-appointed trustee. The assets are turned into cash and the proceeds are distributed to creditors.
Chapter 13. This type is known as the “Adjustment of Debts of an Individual with Regular Income.” In contrast to Chapter 7, Chapter 13 is best suited for debtors with regular income. Those who file under Chapter 13 are able to hold onto valuable assets, such as a house and car. Instead of liquidating assets, Chapter 13 debtors work out a plan to repay creditors over a longer period of time, usually within three to five years. The “means test” also applies to Chapter 13 filing. Chapter 7 and Chapter 13 are the most common individual bankruptcy filings.
Chapter 11. Chapter 11 is used by larger companies that want to continue doing business throughout the bankruptcy process and after it is completed. If you’re an organization seeking to file for bankruptcy, Chapter 11 is a better option than Chapter 7. Filing under Chapter 7 would mean companies are unable to continue operating because all their assets are sold to pay off debts.
So what happens once you’ve filed for bankruptcy? If you think that you just outsmarted the system into getting out of debt legally, think again. Bankruptcy stays on your credit record for a very long time; and by long, we mean 7 to 10 years. It might prevent you from getting a loan, a car, or even a new credit line. Bankruptcy filing should be used sparingly and only as a last resort.
For more information on our various legal services, please don’t hesitate to contact Olympia Law, PC. Schedule an appointment today to learn more about your options.