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Bankruptcy is a process designed by the federal government in an effort to help people, both businesses and consumers, to get rid of their debt. Several different types of bankruptcy can be filed. In some types, the assets owned by the person or company are used to pay the debts.
In other types, the debts are reconstructed to help the company or person repay the debt in a way that they can do. Sometimes, they are called liquidations while other times they are referred to as reorganizations. In either case, they are a serious, and financially life changing event that should not be taken lightly.
Chapter 7, 11, 13: What's With The Numbers?
There are several types of bankruptcy, each defined by a number that is representative of where the item is in the tax code. Here's a look at the differences in each of these.
Chapter 7: This type of bankruptcy is called liquidation. Any property owned is liquidated or sold to get the value from it. There are some types of property that are exempt from bankruptcy.
This exempt property changes from one state to the next. Once the allowable property is sold, the value from it is used to pay down debts, as the court determines. Once everything is liquidated, in most situations any remaining debt is forgiven.
When looking at bankruptcy service; it pays to do some careful research and seek help and support from professionals.
Chapter 11: This type of bankruptcy is one for businesses. It is used for partnerships and corporations. Those that file this will file for a reorganization of their debts. Like Chapter 13, you will need to pay down your debts over a period of time, while all property is kept. Generally, the business is kept up and running, but debts are restructured so they can be repaid over time.
Chapter 13: This is a reorganization type of bankruptcy in which the debts you have are reorganized in such a way that it helps you pay them faster and without as much interest added. In this type of bankruptcy, you will keep your property. You'll need to establish a repayment plan with the court, which generally requires that the debt is paid off over a period of two to five years, depending on your needs.
Frequently Asked Questions
There are bound to be questions about bankruptcy. Here are some of the most common:
* Will I lose my home? Every state defines what property is allowable to keep during a bankruptcy (chapter 7) but in most cases, it is considered a secured debt. If you are in good standing with that lender, chances are good you'll be able to keep the home as long as you keep making payments. To help repay your lenders some states will require you to liquidate the value of the home if there is a substantial amount of value in it.
* Do I need an attorney? With the new bankruptcy laws that have been put in place, it is now not only common but necessary for you to have an attorney to help you through the process. They will help you meet guidelines and timelines and they will help you qualify to be a filer, as many people are finding out they do not qualify due to new laws.
* Will it destroy my life? Bankruptcy is a serious undertaking which will place a black mark on your credit history for the next ten years. It will be more expensive to use credit and you may find it more difficult to make purchases on credit.
In many situations, bankruptcy is the best thing for you. Be careful with using it though. New laws only allow you to file bankruptcy in dire situations. |
