Different Types Of Bankruptcy Offer Financial Relief
When people or businesses are having a tough time paying their bills there are a few options through the courts to help them through troubled financial times. For businesses one of the types of bankruptcy, Chapter 11, gives the business time to reorganize their business model and financial situation before creditors can seize assets of the business in order to recoup any investment. Individuals have two types of bankruptcy, however which one they file is no longer an individual choice as they must meet certain requirements for both.
Individuals have two types of bankruptcy under which they can find financial relief, Chapter 7 and Chapter 13. There are distinct advantages and disadvantages to both types of bankruptcy, but new bankruptcy laws dictate the individual's access to relief. With a Chapter 13 bankruptcy, the debtor enters into an agreement to pay off their debts through the court, overseen by a court-appointed trustee. The advantage is that the debtor can retain ownership of all possessions without fear of losing their home, car and other items purchased with a secured loan.
In a Chapter 13 bankruptcy, total amount of debt is added together and is divided into three or five years to calculate a monthly payment the debtor will have to pay the court trustee. Of the two types of bankruptcy for individuals this is the least intrusive on a family as they do not have to worry about selling their assets to meet the demands of the court.
Employment Required For Chapter 13
To file for this type of bankruptcy the debtor will need to show proof of income, showing they can meet all current obligations as well as the payments to the court. If they are unemployed or underemployed, they may have no choice but to file Chapter 7 bankruptcy. This type of bankruptcy discharges all financial obligations, once ordered by the court and there is usually no problem with unsecured debt such as credit card bills and medical expenses.
However, with a Chapter 7 bankruptcy, creditors may demand return of any secured assets as partial payment on the debt. Home mortgages often result in the loss of the home and any loans on automobiles usually end in repossession. Once all liquid assets are found, sold by the court and the money divided up among the creditors, the case can proceed through the court. It is one of the types of bankruptcy that new laws are designed to avoid, more as a protection to creditors from individuals who purposely run up a lot of debt and then file bankruptcy every seven years.
