View RSS Feed

Legal Help

Most Common Chapters of Bankruptcy

Rate this Entry
by , 08-08-2011 at 05:15 PM (1534 Views)
Chapter 7 bankruptcy is known as liquidation bankruptcy because all of the debtor's non-exempt property is sold to pay off creditors. Chapter 7 essentially wipes a debtor's financial slate clean even if the debtor's current assets cannot pay off all debts. It is an effective for individuals or businesses that need relief from debt they will not be able to pay off but it is intended to be used on a limited basis.

Chapter 11 bankruptcy is for business debtors. The debtor continues to operate and maintain all assets while reorganizing their business to pay off debts owed to creditors. This is the most complex form of bankruptcy, as it involves a number of negotiations and lawsuits to determine how assets should be distributed.

Chapter 12 and 13 bankruptcies are similar to Chapter 11 bankruptcy in that the debtor maintains all assets while carrying out an approved repayment plan. Chapter 12 bankruptcy is for debtors who qualify as "family farmers" or "family fishermen" while Chapter 13 is for individuals. Chapters 11, 12, and 13 have complex but important distinguishing aspects outside of their differences in eligibility.

Bankruptcy can be voluntary or involuntary, the difference being who files the bankruptcy petition:

Voluntary is most common, it is where the debtor files a petition for bankruptcy.

Involuntary bankruptcy is when the creditor files a bankruptcy petition to force a debtor into bankruptcy. Involuntary bankruptcy is only available for Chapters 7 and 11 bankruptcies.
Tags: None Add / Edit Tags
Bankruptcy Law