| TYPES OF BANKRUPTICES |
| What is the process involved while filing bankruptcy? |
| Filing a bankruptcy case begins with the filing of a petition with the bankruptcy court in your area. The form contains all the information pertaining to your assets, debts, income, expenditures, as well as personal financial information. |
| In a Chapter 7 case, the court will appoint a trustee to represent the interests of your creditors, where you must attend a so-called “meeting of creditors” with the trustee to answer questions regarding your assets, debts and so forth. After the meeting, the trustee "liquidates" the property that can be taken from you and splits them among your creditors. At the end of the liquidation process, a hearing is held to discharge your debts. |
| A Chapter 13 case begins by filing the same papers as under a Chapter 7. In addition, you must file a workable plan for repaying your debts with the bankruptcy court. You must send your payments directly to the chapter 13 trustee after filing. The trustee then pays your creditors according to the terms approved by the court. When you have repaid your creditors accordingly, a court hearing will be held to discharge your debts. |
| Are there different types of bankruptcies? |
| Bankruptcy law contains different chapters that include different sets of rules
and laws. These all are included under the Federal Bankruptcy Code. |
| What is Chapter 7 Bankruptcy? |
| This is often referred to as the Liquidation chapter. It involves liquidation of the debtor’s property to pay off his debts. Some of his property can be gained back by him under certain specific federal and state laws. Chapter 7 allows the creditors to take the control of the debtor’s property, but because of this the debtors can pay off the debts sooner. |
| What is Chapter 13 Bankruptcy? |
| This is often referred to as the wage earner’s chapter. Here the debtors work out a periodic payment plan with their creditors to pay off their debts, or at least substantial portions of the debt. One of the most important benefits of Chapter 13 is that, the debtor can continue to live in him /her home so long as he complies with the terms of the court. If the debtor fails to comply, the Court treats the matter as Chapter 7 liquidation. The disadvantage is that the debts can linger for years, burdening future income and financial situation. |
| What is the Chapter11? |
| Chapter 11 is used for business bankruptcies and restructuring them. It is not commonly used by individual debtors since it is far more complex and expensive to pursue. It allows businesses and people involved in that to reorganize themselves, giving them an opportunity to restructure debt and get away from certain burdensome leases and contracts. After filing Chapter 11, businesses are allowed to be pursued under the supervision of the Bankruptcy Court and its appointees. Here the court appoints creditors and stock holders to look in to the interests of the business to develop a plan of reorganization. If these people reject the plan the court can discard and ask for a new plan. |
| What is the Chapter 12? |
| This allows the farmers with business debts, to clear off their debts by paying off the profit of the future crops. |
| What is the advantage of Chapter 7? |
Advantages to a Chapter 7 filing:
(1) The amount of debt you are paying off is not limited to any particular amount.
(2) Unpaid balances after the assets are paid, are discharged.
(3) Wages you earn and property you acquire (except for inheritances) after the bankruptcy is filed, remains with you only.
(4) There is no minimum amount of debt required to file chapter 7.
(5) Your case is often over in about 3-6 months, enabling you to get over the burden of debt in a quicker manner. |
| What is the disadvantage of Chapter 7? |
Disadvantages to a Chapter 7 filing:
(1) You will the non-exempt property which can be sold by the trustee.
(2) Some debts will survive and can be collected after your case is closed.
(3) If you are facing foreclosure on your home, then the lender's efforts are only temporarily stalled by filing chapter 7.
(4) Co-guarantors of a loan can be stuck with your debt, unless they file for similar protection.
(5) This can be filed only once every six years.
(5) Bankruptcy damages your credit rating and future financial situation.
(6) It is difficult to overcome after filing Chapter 7. |
| What is the advantage of Chapter 13? |
Advantages to a Chapter 13 payment plan:
(1) You can retain all your property (exempt and non-exempt).
(2) You have a longer period of time to pay the debt.
(3) The debts that are not discharged in Chapter 7 can be done in a Chapter 13 discharge.
(4) You have protection against creditor's collection efforts.
(5) Any co-guarantors are immune from the creditor’s efforts as long as the Chapter 13 provides for full payment.
(6) You have protection against foreclosure of your home.
(7) You can file a Chapter 13 after your Chapter 7 discharge to pay off any remaining liens.
(8) You can separate your creditors by class. |
| What is the disadvantage of Chapter 13? |
Disadvantages to a Chapter 13 payment plan:
(1) You pay your debts with your post-bankruptcy income. This tie’s up with your cash over the repayment period.
(2) Some debts will survive after your bankruptcy is closed and you must continue paying.
(3) Legal fees are higher since Chapter 13 is more complex to file.
(4) Your debt must be under $1,000,000 which includes unsecured debts that should be less than $250,000 and secured debts less than $750,000.
(5) Your debt can linger for years, burdening your future financial situation.
(6) Stockbrokers and commodity brokers cannot file a Chapter 13 bankruptcy. |
| What is involuntary Bankruptcy? |
| Creditor, rather than the debtor, files the petition in bankruptcy. It is very unusual for the creditors to do so. This is termed as involuntary petition. These are rare, occasionally used in business settings to force a company into bankruptcy so that creditors can enforce their rights. |
| What are prepackaged bankruptcies? |
| Certain companies prepare a reorganization plan that is negotiated and voted by creditors and stockholders before the company actually files for bankruptcy. This shortens and simplifies the process, saving the company’s money, and spending fewer amounts in legal and related fees. There by less disruption to the company’s business and less damage to its goodwill is caused. Under the Bankruptcy Code, two-thirds of the stockholders who vote must accept the plan before it can be implemented, and dissenters have to go along with the majority. |
| Who develops the reorganization plan for the bankrupt companies? |
| Committees of creditors and stockholders typically negotiate a plan with the company to relieve the company from its debt. A committee called the "official committee of unsecured creditors" is formed to meet the creditor’s demands. They represent all unsecured creditors and bondholders. If the company publicly holds its bonds, then the “indenture trustee," often a bank may sit on the committee. Additional official committees may sometimes be appointed to represent stockholders by the court. The U.S. Trustee may appoint another committee to represent a distinct class of creditors. |
| After the committees’ works with the company to develop a plan, the court must approve it legally, and it should comply with the Bankruptcy Code before the plan is implemented. This process is known as plan confirmation. |
