Bankruptcy Filings Fall To Levels Not Seen Since 1985

Cover The Different Types of Bankruptcy A Simple Guide Lifestyle Blog (1170x780)

Table of Contents

• What is Bankruptcy?
• Chapter 7 Bankruptcy
• Chapter 13 Bankruptcy
• Chapter 11 Bankruptcy
• Bankruptcy and Student Loans

What is Bankruptcy?

Bankruptcy is a legal process that allows individuals, businesses, and other entities to eliminate or repay their debts under the protection of the federal bankruptcy court. The goal of bankruptcy is to provide a fresh start to debtors who are struggling to pay their debts and to protect them from creditor harassment and collection actions.

There are six types of bankruptcy under the Bankruptcy Code, each with its own eligibility requirements and procedures. These types of bankruptcy are referred to by their chapter numbers in the Bankruptcy Code.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as "liquidation" bankruptcy, is the most common type of bankruptcy for individuals. In a Chapter 7 bankruptcy, the debtor's non-exempt assets are sold by a court-appointed trustee to repay creditors, and the remaining debts are discharged (eliminated).

To qualify for Chapter 7 bankruptcy, the debtor must pass a means test, which compares the debtor's income to the median income in their state. If the debtor's income is below the median, they are eligible for Chapter 7 bankruptcy. If their income is above the median, they may still be eligible if they can show that they do not have enough disposable income to repay their debts.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, also known as a "wage earner's plan," is a type of bankruptcy that allows individuals with regular income to repay all or part of their debts over a period of three to five years. In a Chapter 13 bankruptcy, the debtor proposes a repayment plan to the court, which must be approved by the creditors and the court.

To qualify for Chapter 13 bankruptcy, the debtor must have a regular income and must have unsecured debts (such as credit card debts) of less than $394,725 and secured debts (such as mortgages or car loans) of less than $1,184,200.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is a type of bankruptcy that is primarily used by businesses to reorganize their debts and continue operating. In a Chapter 11 bankruptcy, the debtor proposes a reorganization plan to the court, which must be approved by the creditors and the court.

Individuals can also file for Chapter 11 bankruptcy, but it is rare and expensive. Chapter 11 bankruptcy is often referred to as "reorganization" bankruptcy because it allows the debtor to restructure their debts and operations in order to become profitable again.

Bankruptcy and Student Loans

Student loans are generally not dischargeable in bankruptcy, meaning that the debtor will still be responsible for repaying them even if they file for bankruptcy. However, there are some circumstances under which student loans may be discharged in bankruptcy.

To have student loans discharged in bankruptcy, the debtor must show that repaying the loans would impose an undue hardship on them and their dependents. This is a difficult standard to meet and requires a separate proceeding in bankruptcy court.

Conclusion

Bankruptcy is a complex legal process that can provide relief to individuals and businesses struggling with debt. The six types of bankruptcy offer different options and requirements depending on the debtor's situation. It is important to consult with an experienced bankruptcy attorney to determine the best course of action.