Overview
Bankruptcy is a legal process intended to assist an individual who has too much
debt to handle. In addition to providing a plan to resolve debt issues, the act of
filing bankruptcy instigates what is known as an "automatic stay". The stay
prohibits creditors from continuing with any collection actions as well as "pauses"
any legal action in progress.
There are three types of bankruptcy available to most individuals. They are
named after the chapter of the Bankruptcy Code in which they are located:
Chapter 7, Chapter 11 and Chapter 13. There is also a Chapter 12, but it is
reserved for family farmers.
Chapter 7
Chapter 7 is often referred to as a "straight" bankruptcy or a "liquidation". Under a
Chapter 7 a debtor is allowed a certain amount of "exempt" assets. Any assets that are
not protected by exemption laws can be sold by a trustee and the proceeds are distributed
to your creditors. Any debt remaining after the distribution is wiped out, or "discharged".
Individuals who have relatively few assets often find that most are covered by the
exemptions.
> Frequently Asked Chapter 7 Questions (PDF)
Chapter 13
Chapter 13 is often referred to as the "wage earner's plan" or "reorganization". A
Chapter 13 allows a debtor to pay some or all of his or her debt to creditors over a three
to five year period. In a Chapter 13, the debtor files what is known as a "Chapter 13
Plan". Rather than making payments to creditors directly, a debtor makes plan
payments to a Chapter 13 Trustee who then distributes it to the creditors according to
the terms of the Plan. Unlike a Chapter 7, a Chapter 13 requires a verifiable source of
income and puts a cap on the amount of unsecured debts allowed. An individual often
files a Chapter 13 when they either have too many assets to qualify for a Chapter 7 or
when they have debts that would be nondischargeable under a Chapter 7, such as
recent taxes or child support. It is a common solution for individuals who are behind on
mortgage payments or are facing a pending foreclosure.
Chapter 11
Chapter 11 is also a "reorganization". While it can be filed by individuals whose debts
exceed the limits of a Chapter 13, it is most often used by corporations as it is far more
complex than a Chapter 7 or Chapter 13 and requires monthly accountings.
NOTICE: WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE FOR BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE
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