Types of Bankruptcy

There are several “classes” or “types” of bankruptcy that can be filed. That is why it is important to hire an experienced attorney that understands each type and can give you the best advice and counsel.

Common Bankruptcy Types

There are more than one type of bankruptcy and you need to know which one fits your unique case. We can help you understand.

What Different Types of Bankruptcy Should I Consider?

  • There are four types of bankruptcy cases provided under the law:
  • Chapter 7 is often the most know and considered as “straight” bankruptcy or “liquidation.” It requires a debtor to give up property which exceeds certain limits called “exemptions”, so the property can be sold to pay creditors.
  • Chapter 11, known as “reorganization”, is used by businesses and a few individual debtors whose debts are very large
  • Chapter 12 is reserved for family farmers.
  • Chapter 13 is called “debt adjustment”. It requires a debtor to file a plan to pay debts (or parts of debts) from current income.

But we will talk about the two most common.

Chapter 7 Bankruptcy

You file a petition requesting the court to discharge or relieve your debts in Chapter 7 bankruptcy cases. The basic concept for chapter 7 bankruptcy is to abolish or discharge personal debts in exchange for relinquishing the property. Some property is considered “exempt” which the law allows the filer to keep. (see bankruptcy – Massachusetts exemptions) Most of your property will be exempt. But the property that is not is sold and the proceeds are distributed to creditors.

However, your home or car would not be exempt, thereby making this types of bankruptcy not right for those that are behind on payments. Chapter 7 bankruptcy does not negate the right of mortgage companies and car loan creditors to reposess your property and sell it to cover your debt. (see Massachusetts Chapter 7 Bankruptcy)

Chapter 13 Bankruptcy

Filers in a chapter 13 case will file a “plan” indicating how they will pay down a portion of past-due and current debts over 3-5 years. Property can be kept, which makes this method more attractive. This is especially important if you would like to keep your home and car. In the majority of Chapter 13 cases, the payments must be a minimum of your regular monthly payments plus extra payment to so you can get caught up. Good cases to file Chapter 13 include:

  • if you own a home and may lose it due to financial issues
  • are behind on car or other debts, but could repay over time
  • have valuable property that is not exempt and you can afford to pay it back over time

Chapter 13 does not eliminate your debt, it allows you to pay over a period of time to fulfill your obligations. (see Massachusetts Chapter 13 bankruptcy)

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