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Which Type of Bankruptcy Is Appropriate for Your Unique Situation?

January 19, 2023

Though most of us have a vague sense of what bankruptcy is, the specifics of the different chapters are a different story. There are distinct and important differences between the many versions of the legal and financial maneuver, with some meant for business and others for individuals, some for those without the resources to pay off their debts and others with too much to qualify for complete discharge but in desperate need of adjustments to the terms of their debts.  The best way to identify the right type of bankruptcy filing for you is to meet with an experienced bankruptcy attorney, but here’s a quick rundown that will give you a head start on understanding the process.

  • Chapter 7 Bankruptcy – This is the type of bankruptcy that is probably best known for individuals. It is also known as a liquidation bankruptcy, and the end result is that any dischargeable, unsecured debt – most notably credit cards and medical bills – are eliminated. Though you cannot discharge student loans, taxes, or child support in a Chapter 7 bankruptcy (or any other kind), you can walk away from most of your creditors and never look back. The downside to a Chapter 7 bankruptcy is that you will need to pass a means test in order to qualify for it and you will be required to liquidate lawsuits.
  • Chapter 13 Bankruptcy – This type of bankruptcy is used by those whose income is too high for them to qualify for a Chapter 7 bankruptcy, but who are unable to pay their debts as they currently stand. Debts are reorganized and the terms are changed to allow a more extended period of time to pay, often with a change in interest rates or other terms in order to make it easier for you to pay your creditors.
  • Chapter 11 Bankruptcy – This is the type of bankruptcy that leads to big signs in the windows of stores. It is a reorganization of a business or corporation’s debts, allowing them the time and space to figure out how to keep the business running and to pay their creditors.
  • Chapter 15 Bankruptcy – This is an international bankruptcy that provides access to U.S. bankruptcy courts for international debtors.
  • Chapter 12 Bankruptcy – This type of bankruptcy was created for family farmers and fishermen to allow them to continue in their trade without having to sell their property or the tools they need to continue operations.
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