How much do you know about bankruptcy? In a nutshell, it is the legal process that allows consumers to relieve themselves of excessive debts. While the process itself might sound simple enough by definition, it is actually quite complex. For example, did you know there are three types of bankruptcy? A Rockville bankruptcy lawyer can answer your specific questions, but to clarify which type means what, here are the descriptions of each.
Chapter 7
Get ready to hear all about chapters. Rather than chapters of a novel, these chapters refer to different parts of the United States bankruptcy code. Chapter 7 is the most common route for people to take. With this kind of bankruptcy, debtors who earn below a specified income can eliminate most unsecured debts. Often called “straight” bankruptcies, these require individuals to give up most high value assets.
Chapter 11
If you are an individual, it is unlikely you will file for Chapter 11. The law provides this process specifically for businesses that are in debt. If your company qualifies, you can expect to create a business reorganization plan to reprioritize debt payments. With Chapter 11, the plan must be in favor of the creditors and not the business.
Chapter 13
The second kind of individual bankruptcy is Chapter 13. While Chapter 7 is for people who earn up to a certain income, Chapter 13 is for those who earn above the limit. If your income is higher than the amount that your state specifies, Chapter 13 will probably be the bankruptcy option available to you. With this route, debtors must pay back a certain amount under a repayment plan. Although you will have to pay at least some money back with this option, you can still alleviate significant financial burdens.
For people who are struggling with massive debt, filing for bankruptcy can be a great solution. Understanding the different types that are out there can help prepare you for your next move if you think this is something you could benefit from.
