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What Are The Types of Bankruptcy?

For many, bankruptcy is the last option for eliminating overwhelming debt. Because bankruptcy leaves a long lasting (10 years) mark on credit histories and scores, it is only advisable to go into it knowing all of the details and the consequences. It is recommended that you speak to an attorney before going forward with a bankruptcy filing. Understand that bankruptcy will limit your abilities to borrow money or get credit in the future. It should be considered a last resort to debt elimination and should be understood that bankruptcy is not the easy way out of debt. Bankruptcy courts can make the decision as to whether or not you are eligible to file. Again, bankruptcy is a major decision that should not be taking lightly.

There are four basic types of bankruptcy we will discuss here as it relates to personal finance.

Types of Bankruptcy

Chapter 7
This type of bankruptcy is essentially a liquidation bankruptcy, meaning that all non-exempt assets of the debtor are sold in order to repay as much of the debt as possible. Whatever can not be paid through the liquidation will be discharged. Chapter 7 bankruptcy can be used by individuals, partnerships, and corporations. Typically businesses will refrain from filing Chapter 7 because they will no longer be able to conduct business as usual.

Chapter 11
This type of bankruptcy is the most complex of all bankruptcies. Both businesses and individuals can file for this type of bankruptcy, though it is most common for businesses to file. During a Chapter 11 bankruptcy, you continue maintain control of your assets but you will be involved in a reworking of your debts in attempt to pay off creditors in full. In the past, debtors had an unlimited amount of time to repay the debts but after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, debtors must submit a reasonable repayment plan with 120 days or risk having the creditor submit their own plan for repayment to the bankruptcy court.

Chapter 12
This type of bankruptcy is specific for farmers. They can file bankruptcy but retain control of their assets while working through a creditor repayment plan to pay off all debts.

Chapter 13
This bankruptcy is similar to Chapter 11 but it is specific to individuals. The filer will still be in control of their assets but a repayment plan, usually based on a three to five year repayment plan. Portions of the total debt may be discharged but that determination will be based on the debtor’s income. Chapter 13 bankruptcy also places limits on the amount and type of debts that can be involved.

A Changing of the Debt Lawsuits – Can You Be Sued for Credit Card Debt?

A few years ago, collection agencies trying to collect on money owed would often threaten lawsuits and further action if you didn’t come up with the money to pay back debts. Many times these threats were only just that – threats. Not many wanted to waste the money or the effort back then to follow through with legal action for unpaid balances. Lawsuits after all are pricey and time intensive so many debt collectors and creditors just kept trying to actively collect on a debt for a year or so but eventually ended up writing off the loss.

However, times have changed quickly. There is so much change going on with the economics of the nation as well as in the credit card industry that the tradition of more passive collection efforts are becoming a thing of the past. More and more companies are taking further legal action and more consumers are finding themselves on the wrong side of a lawsuit for unpaid debts. Credit card companies are hurting bad due to the inability of so many account holders to pay their bills in full or even on time. They can no longer afford to just let debt go and have become more serious about taking legal action.

So what else happens?

When you are the defendant in a credit card lawsuit, chances are good that you will get a judgment against you, provided the balances you owe can be proven. If a judgment is made against you, you will need to find a way to make good on the judgment. In many cases, the judgment will call for a garnishment of your wages until the debt is settled in full. Since your wage garnishment makes it known to your employers that you have debt issues, it is in your best interest to avoid letting your debts get too far out of hand.
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