Bankruptcy is a word that can carry a lot of stigma with it. This is largely due to the fact it can be a severe black mark on your credit report that lasts for years and can affect your ability to qualify for many things. However, on the other hand, bankruptcy is also a way for people who have poorly managed their money and gotten too far into debt to get a fresh start. There are six chapters of law that govern bankruptcy and determine the specific qualifications under which a person or entity can file for bankruptcy. In most cases though, there has to be a genuine and honest need for the discharge of their debts. Hardships such as personal health problems that limit the ability to work, or being burdened with the care of a family member, are two examples of circumstances where bankruptcy is often granted.
The six classes of bankruptcy:
Chapter 7: Liquidation of assets through bankruptcy. In Chapter 7 bankruptcy the court appoints a trustee to liquidize the person’s assets, with some personal exceptions, and pay off debtors with a portion of what was owed, discharging the rest of the debt thereafter. The individual filing for bankruptcy must pass the means test to prove they are incapable of paying back the debts due to financial inability. This is also the chapter of bankruptcy laws and guidelines for individuals, not families.
Chapter 9: This section of the bankruptcy laws deals with municipalities. This means entities such as towns, villages, school districts, and so forth. It can be enacted by a municipality that is in need of assistance with its creditors and help adjusting its budget. Unlike other instances of bankruptcy, assets are not liquidated to satisfy debts. General steps during chapter 9 included consolidating debts and reorganizing finances to get the municipality back on track.
Chapter 11: Businesses and individuals can file chapter 11 to help prevent collections over debts and to establish a recognized plan of repayment that keeps them from going under entirely. It can allow businesses to remain open and work through difficult times.
Chapter 12: Pertains to farmers and fishermen only and is similar to chapter 11, in which these families can continue to work and repay debts according to a more reasonable schedule for them.
Chapter 13: Similar to chapter 11, this is for the individual who wishes to establish their own plan of debt repayment, over an extended period that is typically three to five years in length. Some of the requirements of Chapter 13 bankruptcy include incomes under the state’s median and agreement with the creditors.
Chapter 15: This chapter was written to handle cases where parties are based in more than one country and have a unique set of rules and guidelines.