Bankruptcy Information: The Basics of What You Need to Know
There is a great deal of confusion regarding what bankruptcy itself is. Unfortunately, many people believe that declaring bankruptcy is akin to some sort of self-imposed punishment or concession of assets when, in fact, it's actually an option that allows individuals and businesses to protect the assets that are critical to their continued survival. It's also what is commonly referred to as a path towards 'financial rehabilitation' in that it helps debtors begin a process of clearing old debts while restructuring their current economic burdens.
Those seeking bankruptcy information should first know that there are several types of bankruptcy under U.S. law. Though all such declarations of insolvency amount to individuals or businesses admitting that they cannot clear all of their debts and need vital assets to be protected from creditors, each specific type of bankruptcy is chosen based on the nature of the debtor and their outstanding loans. Though a so-called 'involuntary bankruptcy' can be initiated by a creditor against a business entity that has failed to repay its debts in an appropriate manner, the majority of bankruptcies in the U.S. are initiated by the debtor themselves, whether they be a business or private individual, and can be classified under the following types or chapters:
- Chapter 7 Bankruptcy, which is also sometimes referred to as a 'straight bankruptcy', involves the liquidation (sale) of all non-exempt assets by a trustee who then distributes the proceeds to creditors. Assets deemed vital to the survival and rehabilitation of the debtor are retained while some debt is forgiven or discharged. There are restrictions on what debts can be discharged, however.
- Chapter 11 Bankruptcy, which allows a business or corporate entity to reorganize while setting up a debt repayment plan. Though also known as 'corporate bankruptcy', Chapter 11 is also occasionally filed by individuals with large estates or private holdings.
- Chapter 12 Bankruptcy, which is also sometimes called Wage Earner Bankruptcy, enables individuals to retain all their assets while agreeing to devote a percentage of future earnings to dept repayment.
- In addition to these most common forms of bankruptcy, there exists Chapter 9 Bankruptcy, which deals with municipalities, Chapter 12 Bankruptcy, which covers the rehabilitation of fishermen and family farmers, and Chapter 15 Bankruptcy, which largely concerns foreign debtors.
There is, however, far more bankruptcy-related information than has been covered in the above descriptions. For more, any individual or business should speak to one of our experienced attorneys. We're always happy to answer any and all questions.