There are various bankruptcy laws in the United States and they exist so that large businesses, small businesses, local governments and individual citizens can file for some form of asset protection when all else has failed. Knowing which one is right for you is best left to the expertise of an attorney, but a basic familiarity with the different options out there can help someone to feel better about their options. The different types of bankruptcy include Chapter 7, 11 and 13, and each one of these exists to suit a certain type of applicant. Each type will be discussed below:
This filing is for those who do not have the financial ability to pay for the debts they currently hold. It is typically used in instances where the bulk of the debt the applicant holds is unsecured. Debtors are able to select certain assets such as homes and automobiles to protect from the debt settlement that will be reached in court, but there is a limit on the dollar value of these selections. This is the type of bankruptcy typically utilized by individuals. One of the fairly common bankruptcy myths is that all debts will be discharged in Chapter 7, but that is not always the case.
Famous for when big companies give golden parachutes to its C-Level executives; this type of bankruptcy is a motion that can be applied for by BOTH individuals or companies. The goal of this particular type of bankruptcy is to settle and/or restructure debt in a way that will allow the company or individual to continue moving forward with their normal operations. This type of bankruptcy provides immediate protection for the debtor.
Meant for both businesses or individuals who want to restructure mortgages and other types of secured debt like car loans. The purpose of filing for this type of bankruptcy is to allow the debtor to keep the property they put up for collateral, and also to come up with a plan to allow them to pay off the debts they are holding. This is a popular option for those who have experienced in their mortgage payment due to holding an ARM or another situation that is similar.
The best way to approach bankruptcy of any kind is to speak with both an attorney and a financial advisor. If it is possible to pay off any debts, these payments should be negotiated by the attorney first. In many cases it is possible that debt collectors will accept a lesser amount by way of a settlement. Having an attorney speak to creditors and inform them that the debtor is filing for bankruptcy will help to encourage creditors to lower their expectations. It is important to remember that like any other proceeding in a court of law, there are no guarantees when filing for bankruptcy.