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Understanding Chapters of Bankruptcy & which is applicable

In the US law there are a number of new bankruptcy laws being established to keep in check the increasing ocurrances of bankruptcy cases. The new laws enable the debtors and creditors more room in filing bankruptcy orders, setting up repayment and instituting who can file what type of bankruptcy. Not every type of bankruptcy is ideal for every debtor and it is important to make sure that you select the right type of bankruptcy when filing, so you can get the most out of the process.

There are 3 most common types of bankruptcy:

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the most common process as it can be filed by individuals or businesses. This type of bankruptcy wipes the debts clean with little or no repayment.

Anyone filed under this bankruptcy will find that he can have some properties exempted from selling and everything not exempted is sold to repay debts.

Once the bankruptcy is approved the persons debts filed under the bankruptcy are cleared.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is similar to Chapter 7 as it can be filed by both business and individuals. It is usually reserved for businesses, though.

This type of bankruptcy is suitable for those with a lot of assets and a lot of debt. It is a repayment plan that allows a person or business to repay debts in a way they can afford while also keeping all their assets.

Under this chapter, businesses can still remain run as per normal, which is a very good option for many.

Chapter 13 Bankruptcy

Chapter 13 is another repayment plan for individuals only. It allows a person to keep their possessions while repaying their debts and avoiding common collection methods.

The bankruptcy laws protect a person or business from collection processes. The creditors cannot proceed with the collection process once this is filed. Creditors cannot file court charges, send letters to debtors nor to do anything that may harass the debtor.

So which is the best chapter for you? The answer is: It depends. Always look at your assets and debts carefully before you decide. Ultimately you should be look at clearing your debts without losing all your current assets. In order to best do this you need to look at what property you own that is exempt and if you have any property that is not exempt.

As an advice, one should think of Bankruptcy as the final resort. It is intended to be a way to help you restart your life again. It is wrong to just opt for Chapter 7 because debts are completely eliminated. New laws have prevented many people from filing Chapter 7 when they have the ability to pay debts.