What Are the Different Kinds of Bankruptcies? - WCAX.COM Local Vermont News, Weather and Sports-

Chapter 7, 11, 12, 13

What Are the Different Kinds of Bankruptcies?

Chapter 7 is the bankruptcy provision most frequently used by individuals. It involves the complete liquidation of a debtor's property, with the proceeds used to pay off the debts. However, the debtor can retain certain property that is specifically "exempt" under his choice of Federal law or her State's law, such as tools of one's trade, limited equity in a car and house, and some personal effects. If you use Chapter 7 you may lose your home (depending on your state) but it does enable you to get out from under the burden of debt more quickly.

Chapter 11 is typically used for business bankruptcies and restructuring. It is not commonly used by individual consumers since it is far more complex and expensive to pursue. It allows businesses to reorganize themselves, giving them an opportunity to restructure debt and get out from under certain burdensome leases and contracts. Typically a business is allowed to continue to operate while it is in Chapter 11, although it does so under the supervision of the Bankruptcy Court and its appointees.

Chapter 12 allows farmers with real estate debts to pay off the debts from the profits generated by future crops.

Chapter 13, which has also been known as a wage earner's plan, is used by about 25% of consumers. In Chapter 13 consumers work out a periodic payment plan with their creditors to pay off their debts, or at least substantial portions of the debt. Generally the creditors expect to get more than they would have received from the debtor's estate if the debtor had sought a complete liquidation under Chapter 7.

One of the important benefits of Chapter 13 is that the debtor generally can continue to live in his or her home so long as the debtor complies with the terms of the Chapter 13 arrangement. If the debtor fails to comply, the Court treats the matter as a Chapter 7 liquidation. The disadvantage of Chapter 13 to the debtor is that the debts can linger for years, burdening future income.

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