Types of Bankruptcy
Long Island Bankruptcy Lawyer
Although often spoken about as a blanket statement, bankruptcy is actually a large category of law with different subsections applying to different groups of people. The bankruptcy laws of the United States have been designed to provide an effective and relevant solution to unmanageable debt for all entities and individuals. According to one's abilities, amount of debt, marital status, occupation and position in occupation, there are four main type of bankruptcy available to file under and two of them are the most popularly filed.
Generally speaking, bankruptcy refers to a process in federal court in which a debtor presents his or her assets to be liquidated so that they might be freed for liability for the debts. Many see bankruptcy as the "rock bottom" of finances, when the only option to recover is to start over. Bankruptcy is a chance for individuals, businesses and families to turn their financial status around for a second chance.
Chapters of Bankruptcy
As mentioned above, there are four types of bankruptcy, also known as chapters. They are referred to as chapters because of the section of the law they are found in under the Federal Bankruptcy Code, which is Title 11 of the United States Code:
- Chapter 7: As the most frequently filed for bankruptcy, Chapter 7 is known as a liquidation bankruptcy. Liquidation means settle financial affairs by giving up the assets of a business or collective. Available to businesses, married couples and individuals alike, Chapter 7 allows one to have a fresh financial restart by liquidating all of their assets, with the exception of a few necessities such as residence and/or clothing. The liquidation results in the forgiveness, or discharge, of most, if not all of the filer's debts. Certain debts do not qualify for discharging and will not receive forgiveness. These debts include outstanding tax debts, alimony or child support payments that are past due and, most of the time, student loans.
- Chapter 11: In contrast to Chapter 7's liquidation, Chapter 11 is known as the reorganization bankruptcy. It was originally intended for large corporations who needed to reorganize and manage their debts with the assistance of a trustee. However, individuals are now able to file under Chapter 11 as well. Chapter 11 gives filer's time to restructure their finances and debt into a manageable and there is no limit on the amount of debt one can have and still file.
- Chapter 12: Chapter 12 is the only exclusive form of bankruptcy. Intended for family farmers, Chapter 12 is essentially the same thing as Chapter 13 (see below), except that Chapter 13 is for all individuals.
- Chapter 13: Chapter 13 and Chapter 12 bankruptcy are usually explained together because of their similarities. Under these Chapters, qualified individuals or businesses must have collective debt of less than $269,250 in unsecured and less than $807,750 in secured debt. Once the bankruptcy is filed, the debtor will be assigned a trustee who will assist them in developing a proposed repayment plan for the debt. The court will then rule on whether or not to accept the plan. If it denies the proposed plan, the court may also decide upon its own plan altogether. People may choose to file under Chapter 13 because it does not require them to liquidate their assets, most of the time keeping everything they own. Furthermore, Chapter 13 bankruptcy is a repayment plan but the debtor only ends up paying back a percentage of the debt he or she originally owed.
Choosing to File the Right Type of Bankruptcy
Trying to understand the different chapters of bankruptcy and decide which is best for your situation may be challenging. While bankruptcy is nothing to be ashamed of, it is a very serious matter and if it is not executed properly, it can hurt more than help. Choosing the correct chapter and going through the process correctly will make all the difference in your pursuit for debt relief. It is highly advised that you consult with a Long Island bankruptcy attorney before attempting bankruptcy on your own.
Whether you are a business owner or an individual, turn to Jacoby & Jacoby, where you will find dependable counsel and guidance as you seek out solutions to your financial situation. Our Long Island bankruptcy law firm has been assisting clients since the year 1964, fostering relationships with the legal community and building a knowledge base that is insurmountable. Our team is waiting to hear about your situation and share with you how our firm can help as you seek a clean slate. To learn more about the services we offer in the area of bankruptcy or to schedule a free legal evaluation, contact our Long Island bankruptcy attorneys today!