Chapter 7 bankruptcy, also known as liquidation, is the most common and well-known option. A court-appointed trustee distributes assets to creditors and establishes interim financing options under this method. If no assets exist, there is nothing to distribute, and creditors receive nothing. However, the petitioner is frequently still responsible for a small portion of the debt. In Chapter 7 bankruptcy, the petitioner is released from personal liability for the majority of debts. This may be denied if the debtor fails to explain the loss of assets, conducts perjury, or disposes of assets unlawfully.
Chapter 9 bankruptcy involves the reorganization of municipalities such as cities, villages, and school districts. This is typically accomplished by extending debt maturities, reducing interest or principal, or refinancing the loan entirely. The absence of asset distribution distinguishes Chapter 9 bankruptcy from the others, as such a practice would be in violation of the Tenth Amendment.
Chapter 11 of the Bankruptcy Code is primarily utilized by corporations or partnerships, and a plan to reorganize the business and keep it alive is typically developed. It is fascinating to note that this method of bankruptcy is typically the most complex and costly. Unless the court orders otherwise, the debtor retains control of the business and may negotiate with the creditors to restructure the debt, reschedule the payments, and potentially obtain new Loans.
Chapter 12 of the Bankruptcy Code applies to farmers and fisheries with a consistent annual income. Using this method, debtors create a plan to repay their debt within three to five years. It is significantly simpler and less expensive than Chapter 11. Additionally, filing for bankruptcy under this chapter is entirely voluntary. Unless an extension is granted, the debtor must submit a repayment plan within ninety days of filing the petition. The plan is not required to completely satisfy unsecured claims, but it must commit to all of the debtor's projected disposable income.
Like Chapter 7, Chapter 13 bankruptcy is for individuals. In this plan, individuals negotiate a plan with their creditors to repay their debts within three to five years. In this type of bankruptcy, there is no distribution of assets among debtors. As terms are negotiated with the mortgage lender, the debtor may be able to save his or her home from foreclosure; however, minimum mortgage payments must be made to save the home.
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