What Different Types of Bankruptcy Cases Should I Consider?
There are four types of bankruptcy cases provided under the law:
● Chapter 7 is known as “straight” bankruptcy or “liquidation.” It requires an individual to give up property which is not “exempt” under the law, so the property can be sold to pay creditors. Generally, those who file chapter 7 keep all of their property except property which is very valuable or which is subject to a lien which they cannot avoid or afford to pay.
● Chapter 11, known as “reorganization,” is used by businesses and a few individuals whose debts are very large.
● Chapter 12 is reserved for family farmers and fishermen.
● Chapter 13 is a type of “reorganization” used by individuals to pay all or a portion of their debts over a period of years using their current income.
Most people filing bankruptcy will want to file under either chapter 7 or chapter 13. Either type of case may be filed individually or by a married couple filing jointly.
What Bankruptcy Cannot Do.
Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:
● Eliminate certain rights of “secured” creditors. A creditor is “secured” if it has taken a mortgage or other lien on property as collateral for a loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money on the debt if you decide to give back the property. But you generally cannot keep secured property unless you continue to pay the debt.
● Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, most student loans, court restitution orders, criminal fines, and most taxes.
● Discharge debts that arise after bankruptcy has been filed.
● Protect cosigners on your debts. When a relative or friend has cosigned a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan. Cosigners on some debts can be protected, however, if a chapter 13 bankruptcy is filed.