10 Dec Bankruptcy Basics: 2 Kinds of Bankruptcy but 5 Chapters
There are only two kinds of bankruptcy:
- Straight / Liquidation
- Reorganization
but there are five chapters of bankruptcy:
- 7
- 9
- 11
- 12
- 13
The chapters fall within one of the kinds.
Straight bankruptcy is always Chapter 7. Chapter 7 wipes out most unsecured loans (debts without collateral) in exchange for giving up all of your property, except the property you own that is exempt (protected from creditors). If it is exempt, it is protected from creditors. Many people file for Chapter 7 and are able to keep everything they own.
If there is more property than is protected, they may have to give that to the Court to sell, or liquidate. There are sometimes ways to keep non-exempt property but it usually requires paying to keep it.
What is exempt in bankruptcy varies from state to state so you have to speak to an attorney in your area to know what property would be protected if you filed for Chapter 7, and how to best protect yourself.
Reorganization bankruptcy comes in four different chapters, but most people will look at Chapter 13 which is a consumer reorganization.
Chapter 9 is for cities.
Chapter 11 is for corporations, which can’t file under 13. Individuals can also file 11, and must if they want to reorganize over $336,900+ (or as adjusted periodically*) unsecured debts and/or $1,010,650+ (or as adjusted periodically*)secured debts.
Chapter 12 is for farmers.
Chapter 13 is for individuals who need a reorganization and who are under the debt limits listed above.
Reorganizations allow people time to pay off the debts owed, sometimes in full but sometimes in part.
Secured debts must be paid to keep the collateral, but in some cases they can be paid less if the value of the collateral is less than what is owed.
The terms of repayment can be reorganized to be paid over a five year period, which can lower the monthly payments and/or give you time to catch up. Unsecured debts might be paid in full, or they might be paid pennies on the dollar.
The amount paid to unsecured creditors will depend on the ability of the debtor and the value of any non-exempt property.
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