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Bankruptcy - The Short Version
Simply put, being bankrupt is the inability of an individual, corporation or other entity to meet their financial obligations. Bankruptcy is defined by state and federal law and is typically characterized by an individual that owes more money than they have the ability to pay. There are 6 types of bankruptcy defined by the bankruptcy code under title 11. These are brief introductions to the chapters of bankruptcy. Chapter 7 BankruptcyThis chapter of the bankruptcy code is the most common type of bankruptcy in America. Chapter 7 bankruptcy entails the "liquidation" of certain assets owned by the individual filing for bankruptcy. Liquidation is limited and the individual filing for bankruptcy is allowed exemptions. These exemptions are defined by the laws of the state where the bankruptcy is filed. Chapter 9 BankruptcyChapter 9 bankruptcy may only be filed by municipalities and is used to restructure debt that has been incurred by a government entity. Since state government entity's consist of elements uncommon to commercial business or individuals, a chapter was created to exclusively deal with the financial problems of municipal organizations.
Chapter 11 BankruptcyChapter 11 is commonly used by businesses that wish to reorganize their debt. This is in contrast to liquidation, in which assets are sold-off and the proceeds given to the creditors. Individuals that accumulate large debts and have significant assets may also file for chapter 11 bankruptcy. Chapter 12 BankruptcyThis chapter of the bankruptcy code may only be used by family farmers and fishermen that earn a recurring annual income. Chapter 12 allows members of these groups that find themselves unable to meet their financial commitments to organize a plan to pay-off some or all of their debts. Chapter 13 BankruptcyChapter 13 bankruptcy is designed for individuals with a recurring wage or income. The individual may create a plan to pay creditors over a 3 to 5 year period. Chapter 13 differs from Chapter 7 because it does not consider liquidation of assets (Selling the things you own) and gives the individual the opportunity to pay creditors over a time frame determined by the court. Chapter 15 BankruptcyOfficially titled "Ancillary and Other Cross Border Cases" Chapter 15 was created to enable support of bankruptcy proceedings beyond the borders of the United States. The descriptions above are not a comprehensive legal definitions but rather informal descriptions of the terms and how they may be used in a case involving bankruptcy. |
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