In America, there are a number of different types of bankruptcy, depending on which situation you are in. You have probably heard plenty of bankruptcy codes being bantered around in the media – things like Chapter 7 and Chapter 13.
Let’s take a moment to actually look at what these mean, and see who they might apply to.
Chapter 7 Bankruptcy
A Chapter 7 Bankruptcy is by far the most common in America. Now that we have just been through the biggest recession in more than a decade (2008 – 2009), the number of Chapter 7 bankruptcies has skyrocketed.
Essentially, in this bankruptcy, you are forced to sell all of your available assets (within reason) to pay for your outstanding debts. Once everything has been sold, and you can no longer contribute enough to your outstanding balances, the remaining debts are cleared and you are no longer responsible for them.
Chapter 7 bankruptcy applies not only to individuals, but also to business and companies. Therefore, this makes it a fairly robust and versatile chapter in the US legal code. This is most likely the type of bankruptcy that you will consider if you can’t afford to repay all of your obligations.
Chapter 13 Bankruptcy
By filing for a Chapter 13 bankruptcy, you are declaring yourself “half bankrupt”. You still have the ability to earn money and you are probably still in a job. However, your debts just got away from you for one reason or another.
In this case, you will be allowed to live in your home (if you have one) – and you won’t be forced to sell all your assets. However, you will be required to submit a financial plan, get financial counselling, and pay off all outstanding debts within 5 years. The court will oversee this repayment.
Chapter 11 Bankruptcy
This is almost exactly the same as a Chapter 13 bankruptcy, except it is specifically designed for businesses. Of course, unless you own a business and the business holds your debts, you probably won’t be too interested in Chapter 11.
However, if your business is currently running in to the ground, you might want to seek the professional help of a debt consolidation agent or a financing professional. One of the companies we recommend to solve debt issues – Care One Credit – has a special business unit specifically designed to help in Chapter 11 cases.