What is bankruptcy? Well, this can be defined as a legal status of a company or an individual who cannot repay the debts owed to its creditors. In a majority of cases, it is the debtor that initiates it and the court which imposes bankruptcy on an individual or company. What a lot of people don’t know is that there are several different types of bankruptcy. It is important to be aware of all the different types of bankruptcy because this knowledge would be able to help you make the decision as to which type of bankruptcy would be right for your situation. It helps to have this knowledge even if you know that you are going to hire the services of a bankruptcy attorney.
The most common form of bankruptcy out of all thevarious types of bankruptcy would have to be liquidation or Chapter 7 bankruptcy. This type of bankruptcy is applicable to individuals as well as companies and it pertains to medical expenses and credit card bills. An individual or a company can file for this kind of bankruptcy only after clearing a test or an assessment. During this test, the income of the debtor will be assessed or calculated along with the qualifying parties whose income or earnings are below the average state figure annually. When it comes to Chapter 7 bankruptcy, a party would be appointed by the court in order to take possession of the non-exempted assets and sell them. This party is known as ‘trustee’ and the funds gained from the sale will be paid towards the secured part of the debt.
There is another type of bankruptcy which individuals and companies file often, and that is Chapter 13 bankruptcy. In case of this kind of proceeding, the debtor in question would have to follow a plan that has been approved by the court pertaining to the repayment of debts within a predetermined period of time. While in case of Chapter 7 liquidation, the debtor wasn’t allowed to retain his/her assets, in case of this kind of bankruptcy the debtor is allowed to. However, there is a condition and that is the debtor should maintain his/her payments as per the court approved plan. As long as the debtor follows the plan, he/she would be protected from repossessions, tax garnishments, lawsuits, foreclosures and other things related to debts. The rule here is that all debts that are filed under this kind of bankruptcy should be repaid within five years’ time maximum.
In case companies or business enterprises are in huge financial loss but they wish to continue their operations then they should file for Chapter 11 bankruptcy out of all the different types of bankruptcy. Of course there is always the option of going for Chapter 7 bankruptcy but it would always be wiser to opt for Chapter 11 bankruptcy instead as the latter allows the companies to remain in business with a motive of regaining profitability via active restructuring. In this case, the company in question can discharge a part of its debt and as for the remaining amount, it would be used for repaying. When a debtor files for Chapter 11 bankruptcy, he/she would be able to recover within months after filing!