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FOUR KINDS OF BANKRUPTCY:
Chapter 7: This is what most people think of when they think
of bankruptcy. The other chapters, 11,12 and 13 are not the
traditional bankruptcy. Chapter 7 is where you get rid of
your debts to get a fresh start. There are a few types of
debts that even a Chapter 7 may not erase, such as some taxes,
alimony and support, some student loans, and fraud debts;
(but Chapter 11, 12 and 13 can help you even with those.)
Chapter 7 is quite simple. You don't even see the judge. Most
people keep their furniture and personal belongings and may
keep their cars and house, but we'll have to explain how that
specifically applies to you.
Chapter 13: This is a good chapter to use if you are behind
on house payments. (It will instantly stop foreclosure!) It
is also good for paying state and federal taxes without having
to pay interest. In Chapter 13, you figure out how much money
you need to live on each month and decide what is left over
to apply to pay bills. You pay that amount for three to five
years through a bankruptcy trustee. The result is that you
pay what you can afford, not what creditors demand. Usually
most of your creditors get paid a portion of the amount due,
and receive it in payments made over several years. Once the
schedule has been approved, you make one payment each month
to the court appointed trustee, who pays all creditors according
to the plan. Chapter 13 can also protect people who co-signed
with you.
Chapter 11: This chapter generally is best for businesses,
large and small corporations or partnerships. It allows debtors
to reorganize their debts to pay them more in line with their
income. Mortgage debt is frequently rewritten under Chapter
11 to give smaller payments, and there is often a "breathing
spell" provided in Chapter 11 so that payments don't have
to be made for many months.
Chapter 12: These cases permit the restructuring of farm
debts. Chapter 12 is like a Chapter 13, but for farmers only,
and with a higher amount of debt allowed. The eligibility
requirements are very strict. It is available only to family
farmers with regular annual income. If a client can meet the
eligibility requirements, the client will usually prefer to
file under Chapter 12 rather than any other chapter of the
Bankruptcy Code. The primary advantage is the ability to reorganize
debt without the complex procedures involved in a Chapter
11.
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