Understanding the Different Types of Bankruptcy

When a debtor cannot pay off his or her credit anymore, they can opt to file a bankruptcy case. There are various kinds of bankruptcy methods, and each is labeled by the heading of the chapters of the Bankruptcy code, in the order in which they appear.

There are seven different types of bankruptcies:

Chapter 7 bankruptcy:

This is the most common type of bankruptcy used. In this bankruptcy, the debtor is relieved of all the payments he owes. In this bankruptcy, all the debtor’s assets are liquidated and all his debts are cleared. It gives the debtor’s life a brand new start. This is used for individuals.

Chapter 9 bankruptcy:

A Chapter 9 bankruptcy is known as a municipality bankruptcy. The principal use of this type of bankruptcy is to give a defaulter or a municipality protection from the people and organizations it owes debts to and cannot pay. Debt is reorganized in this type of bankruptcy and only the municipality has the right to file for relief in this case.

Chapter 11 Bankruptcy:

A Chapter 11 bankruptcy is known as a corporate bankruptcy or a reorganization bankruptcy. Business or organizations can file for this type of bankruptcy organizations are unable to pay their creditors or when creditors claim that a business organization owe them an exorbitant sum of money that they cannot pay back, the business organizations file for a chapter 11 bankruptcy. In this type of bankruptcy, a business organization’s debt and assets are reorganized in order to help relieve them from a part of their debt and so that the remaining can be paid back to the best of their ability.

Chapter 12 bankruptcy:

This bankruptcy is specially planned for the farmer or fisherman who has a regular annual income. We all know that the most of a farmer’s life is spent paying off debts.  This particular bankruptcy is designed to enable them to file a bankruptcy case to enable them to repay their debts or at least a small part of them.

Chapter 13 Bankruptcy:

This particular bankruptcy can be filed at any time and even enables individuals to pay off their debts while keeping their property intact. An individual needs to have a steady job and a regular income. In this type of bankruptcy, they have the option to pay off their debts over a three to five year period and as well as keep the property. This type of bankruptcy is also only used for individuals, like a Chapter 7 bankruptcy.

Chapter 14 bankruptcy:

A Chapter 14 bankruptcy is best described as an involuntary bankruptcy. In this bankruptcy, creditors file a bankruptcy petition against their own debtors. This bankruptcy is very rare and seen more in the corporate world than with individuals.

Chapter 15 Bankruptcy:

This is a newly added chapter in the Bankruptcy code or may even be termed as the new type of bankruptcy, which is designed for international state of affairs. This bankruptcy gives rights to foreigners to take part in the state’s bankruptcies cases.

The above mentioned are the different types of bankruptcies available. The Chapter 7 and Chapter 13 bankruptcies are very important and the most commonly used out of the seven types of bankruptcies.