Bankruptcy is a legal proceeding that allows individuals or businesses to reorganize or eliminate their debts when they are unable to pay them. There are several types of bankruptcy, each with its own set of rules and eligibility criteria. Understanding the different types of bankruptcy can help you make informed decisions about your financial situation.
Chapter 7 bankruptcy, also known as "liquidation" bankruptcy, is the most common type of bankruptcy. It involves liquidating a debtor's non-exempt assets to pay off creditors, while exempt assets are preserved. To be eligible for Chapter 7 bankruptcy, debtors must have a moderate amount of unsecured debt and meet certain income guidelines.
Chapter 11 bankruptcy is designed for businesses that want to reorganize their debts and operations. This type of bankruptcy allows businesses to create a repayment plan, which can involve selling assets or restructuring debt. To be eligible for Chapter 11 bankruptcy, businesses must have significant unsecured debt and meet specific criteria.
Chapter 13 bankruptcy is commonly known as "wage garnishment" bankruptcy. It allows debtors to create a repayment plan, which can involve monthly payments of a portion of their income towards their debts. To be eligible for Chapter 13 bankruptcy, debtors must have a moderate amount of unsecured debt and meet specific income guidelines.
Chapter 9 bankruptcy is typically used by non-profit organizations, such as hospitals or charities. It allows these entities to reorganize their debts and operations without liquidating assets. To be eligible for Chapter 9 bankruptcy, non-profits must meet specific criteria, including a significant amount of unsecured debt.
Chapter 12 bankruptcy is specifically designed for family farmers and fishermen. It allows these individuals to reorganize their debts and operations without liquidating assets. To be eligible for Chapter 12 bankruptcy, debtors must meet specific criteria, including a significant amount of unsecured debt.
Chapter 15 bankruptcy is used by businesses and other entities that operate in multiple jurisdictions. It allows these entities to reorganize their debts and operations without liquidating assets, while also complying with laws in different countries.