Thursday, December 27, 2012

Types of Bankruptcy

Below is a guest post offering a concise description of the four main types of bankruptcy:

Know more about the 4 different types of bankruptcy

Bankruptcy is essentially a legal proceeding which involves either a person or business that isn’t able to repay outstanding debts. It offers an individual or business the opportunity to start afresh with debts being forgiven. It also offers the creditors some chance to obtain a certain measure of repayment based on the available assets. Theoretically speaking, bankruptcy is supposed to benefit the overall economy as well.

The different types of bankruptcy

The bankruptcy filings in the United States essentially falls under 4 categories. Read on to find out more.

1.      Chapter 7: This chapter essentially deals with a bankruptcy proceeding wherein a company stops all operations and generally goes completely out of business. There’s a trustee appointed for liquidating or selling off the company’s assets or in the case of an individual, his or her assets, and the money generated from this sale is used to pay off debts. As for the payments, then those investors who’ve taken the least risk are paid off first. This is one such phenomenon which is known as “absolute priority”.

2.      Chapter 11: This is a form of bankruptcy that essentially involves reorganizing a debtor’s business affairs plus assets. This particular bankruptcy is generally filed by corporations that mostly require time for reshuffling their debts. This is perhaps the most complex of all bankruptcy cases as well as the most expensive one. Experts are of the opinion that this particular case should only be considered after a lot of careful analysis and exploration of all other possible alternatives.

3.      Chapter 12: This particular chapter deals particularly with family farms or fisheries. This US bankruptcy proceeding endows the farm or fishery owner the ability to restructure his or her finances and debts while still being able to keep the farm or fishery. In this proceeding, the farm or fishery owner has to work with a bankruptcy trustee and his or her creditors to formulate a payment plan that’ll meet his or her own financial obligations.

4.      Chapter 13: This chapter deals with a US bankruptcy proceeding wherein the debtor takes on a reorganization of his or her finances under the supervision and the approval of the courts. The debtor also needs to submit a plan which he or she must compulsorily follow through. This would essentially involve a pay back plan wherein the debtor has to pay back his or her creditors the outstanding debt within a time span of 3 to 5 years. If required, then this can use cent per cent of the debtor’s income.

If you’re considering filing bankruptcy, then it always helps to gather knowledge about the entire process. This always gives you an easy start which is more than welcome.


  1. This information is useful !! Thanks for the great share !!

  2. Thanks for sharing. I might need to file bankruptcy in Edmonton. Its been a bad year for the family business. I don't know what else to do.

  3. Great Post, Explain well types of bankruptcy.Thanks for Sharing ,we should consider that If you are about to file for bankruptcy, then make sure you hire a lawyer. It is difficult to make all of the necessary decisions yourself, and expert guidance will be helpful. A qualified bankruptcy attorney can guide you through the filing process.

  4. I really appreciate you sharing this! I've been trying to learn as much as I can about bankruptcy with hopes to help people who are struggling with it. As I've looked around, I have found this and to be the most helpful. Thanks for sharing!