It is imperative that you gain knowledge about insolvency, bankruptcy laws, how bankruptcies work, types of bankruptcies, etc. As per the bankruptcy law, you may not be required to hire a lawyer. However, most people find the process daunting. Also, not everyone is comfortable handling their own legal case. It is best that you take guidance from an experienced bankruptcy lawyer.
What is bankruptcy and how bankruptcies work?
Bankruptcy is a way to start over as provided in the United States. It is governed by federal law. It is a tool which helps reduce the burden of unmanageable debt. Bankruptcy or insolvency is an orderly process through which companies can windup business and liquidate assets.
The bankruptcy courts, which are a sub-unit of the federal district court system, exist in each and every district of the United States and are supervised by bankruptcy judges. A trustee is appointed for most of the bankruptcy cases. The trustee collects as many assets as possible from you to pay to your creditors.
What are the types of bankruptcies?
There are total six types of bankruptcies as discussed below:
- Chapter 7 liquidation
It is the most common and traditional bankruptcy for individuals. Under this type, you have to surrender your nonexempt property to pay off your other debt as much as possible. You can keep all of your other exempt property. You are later released from any obligation to repay the remaining debt.
To file bankruptcy under Chapter 7, you need to qualify under a calculation called means test, which determines that you do not have sufficient income to pay at least a part of your debts. But if you have enough income, you have to file bankruptcy under Chapter 13.
- Chapter 13 bankruptcy
Under this type of bankruptcy, depending on your income you can get your payments restructured so they are more manageable and/or get rid of a part of your debt. You are allowed to pay a part of your debt over a period of three to five years. This helps you reduce your periodic payment amount. It is imperative that the trustee and judge accept your repayment plan. Availing the services of an experienced bankruptcy lawyer is beneficial in this case.
- Chapter 11 bankruptcy
This type of bankruptcy is for both individuals as well as businesses. Usually corporations or partnerships or sole proprietorships are allowed to reorganize their business to keep it alive and pay their creditors overtime.
- Chapter 9 bankruptcy
This type of bankruptcy is useful for municipalities and other political subdivisions like utilities, hospitals, airports, or school districts. It helps municipalities in extending the timeline for repayment and allowing for the refinance of debt or for reduction of principal or interest on existing debts.
- Chapter 12 bankruptcy
This type of bankruptcy has been designed for family farmers and family fishermen. Financially distressed family farmers and fishermen are allowed to propose and carry out a repayment plan.
- Chapter 15 bankruptcy
This type of bankruptcy is filed by foreign debtors and it addresses international bankruptcy issues. They are usually companies with bankruptcy actions pending in other countries.