Bankruptcy law is incredibly complex. There are a myriad of details and nuances, and each is addressed differently in court. There are several types of bankruptcy and the decision of which type to declare is a matter of individual circumstance. It is generally defined as the process a person goes through to ask for legal protection from the court from his creditors. Sometimes, the court will grant full discharge of the debts. Other times, only a partial discharge is granted. Some debts, according to federal law, cannot be dismissed.
Below, we’ll explore how the legal system treats the different types of bankruptcy. You should speak with a bankruptcy lawyer to determine which type is most appropriate for your personal or business circumstances.
What Is Chapter 7?
This is the most common form of personal bankruptcy. The court will appoint a trustee to review your assets. Some will be sold to pay a portion of your outstanding debts. Depending upon the state in which you live, you may be able to retain ownership of some assets. In the end, the court will usually discharge most debts under Chapter 7 protection.
What Is Chapter 11?
This form of bankruptcy is mostly declared by businesses because it allows them to avoid liquidation or closure. The business may continue operating even while its debts are dismissed. Chapter 11 is often referred to as “reorganization” and has endured reproach from those who consider it an easy “escape plan” for ineffective management. Most businesses opt for Chapter 11 because Chapter 7 requires closure of the business.
What Is Chapter 13?
Protection under Chapter 13 is exclusively for individuals . Under this form of bankruptcy, the debtor will create a plan through which he will pay back the money that is owed over time. If the bankruptcy court approves his proposal, it will assign a trustee to the case. The debtor will make all payments to the trustee. The trustee has the responsibility of disbursing the payments to creditors, according to the debtor’s proposal.
Are Bankruptcies Always Granted?
The courts will usually grant bankruptcy protection to individuals and businesses who are in severe financial distress. That said, there are situations in which the court will refuse. For example, if a debtor cannot offer a sufficient explanation about the loss of personal or business assets, a bankruptcy court may not grant protection. Similarly, if the court discovers that a debtor is trying to hide assets (for example, transferring money into a child’s bank account), protection may be denied.
As mentioned, bankruptcy law can be complicated and every case should be reviewed on the merit of its unique circumstances. What’s more, the laws which govern the level of protection offered to debtors can change quickly. That is why seeking the counsel of a bankruptcy lawyer is critical. An attorney can help identify which form of protection is best-suited for every situation.
The effects of filing for bankruptcy can have a long-lasting personal and business impact. And that makes having competent legal advice even more valuable.