The Four Different Chapters of Bankruptcy

Have you found yourself to be in a situation where bankruptcy seems like the only way to get your life back on track, you should get to know exactly what to expect. You will be filing for chapter bankruptcy, and the chapter will depend on your individual situation.

Debt can build over time to amounts that you know you will not be able to pay. This will hurt both your credit score and ability to have any personal luxuries. Careful consideration should be taken before you decide that filing for bankruptcy is the way to go. If you can handle the responsibility and manage your finances properly, it could be the start of your new financial life.

The two most common types of chapter bankruptcy are 7 and 13. Chapter 7 bankruptcy is a fresh start that begins when you, the debtor, are required to hand over any property that is considered "non-exempt" following the liquidation proceeding. Your assets will be sold so that the money can be distributed among the people you are in debt to, also known as the creditors. Within a six month period, your debts will be canceled so that you can start over fresh and handle your finances more efficiently.

Chapter 13 is similar to 7, but you will be able to retain your assets instead of giving them up. However, you will be required to repay the debts through a reduced payment plan instead of having them automatically cleared for you. This type of chapter bankruptcy will also appear better on your credit report than Chapter 7 would.

Similar to Chapter 13, Chapter 11 and 12 give you the opportunity to keep some or all of your assets following a reorganization proceeding. It is aimed at the business-owner who plans to continue running the business to pay creditors out of the future income made. These two types of chapter bankruptcy require that you go through reorganization so that you can begin repaying your debts through your profits as a business. The main difference is that Chapter 12 allows you to keep all property as it only relates to the farming business, while Chapter 11 may require you to sell assets in your payment plan.

Each type of chapter bankruptcy has its advantages and disadvantages because they are considered a last resort option to get out of debt. Finding which category your situation fits into will be one of the initial steps to getting through your personal situation so that you can begin to rebuild your finances.