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Published On: Wed, Apr 25th, 2018

Types of Bankruptcy — and Which You Should File

If you’re considering filing bankruptcy, you’ve likely already tried every other option available to you. Filing bankruptcy is a huge decision, and should not be undertaken lightly. Before you file, you should be sure that you’ve tried other potential solutions, such as refinancing.

But, if you’re beginning to think that bankruptcy might be the most viable option for your situation, then you should begin to learn about the different types of bankruptcy that you could file.  Here are the four main types of bankruptcy, introduced and briefly explained.

photo/ Mary Pahlke

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is perhaps the most well-understood by the general public.

An individual filing under Chapter 7 will liquidate all of their assets in order to pay back as much of their debt as possible. If there is still debt remaining after all of the assets have been liquidated, then it is cleared, giving the debtor a chance to start over.

However, as with all types of bankruptcy, an individual filing under Chapter 7 will see huge impacts on their credit score, making it difficult to get a loan, purchase a car, or open a credit card in the future.

In addition, you may not qualify for Chapter 7 bankruptcy if you are currently earning a high income.

Chapter 11 Bankruptcy

Although individuals are legally allowed to file under Chapter 11, this type of bankruptcy is typically filed by businesses.

Because of this, we’ll largely skip over Chapter 11 — although if you do think you qualify for this type of bankruptcy, it’s in your best interest to speak with a bankruptcy lawyer. If you do file Chapter 11, you’ll more than likely need to hire a lawyer anyway.

Chapter 12 Bankruptcy

Farmers and fishermen may qualify for Chapter 12 bankruptcy, which puts debtors on a repayment plan based on their income and debt level. Repayment plans are typically three to five years long.

Chapter 12 is very similar to Chapter 13 (see below), although Chapter 12 gives filers additional allowances and benefits that Chapter 13 filers do not have access to.

Chapter 12 filers are also legally allowed to file even if they have accrued large amounts of debt — that is, the maximum debt under Chapter 12 bankruptcy is higher than it is under Chapter 13 bankruptcy.

Chapter 13 Bankruptcy

Similarly to Chapter 12 bankruptcy, Chapter 13 bankruptcy puts debtors on a repayment plan that schedules them to repay much of the money owed to their creditors.

Repayment plans are typically three to five years long, and are dependent on the debtor’s income and amount of debt.

Chapter 13 bankruptcy does not liquidate any of your assets, unlike Chapter 7 filings. In fact, Chapter 13 bankruptcy, if filed and followed correctly, can help you regain your house if it is currently in the process of foreclosure.

To qualify for Chapter 13, you must have a regular monthly income, although there are no income limits, unlike Chapter 7 filings. There are, however, caps to the amount of debt you can have while filing for Chapter 13.

If you find yourself in a situation where you need to file for bankruptcy, remember that you always have options. And, if you’re worried about the complexity of bankruptcy laws, then it may be in your best interest to hire a lawyer, so that you don’t lose more than absolutely necessary as you file.

Author: Brad Richardson

On the DISPATCH: Headlines  Local  Opinion

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