Bankruptcy is a very complicated process to discuss and the exact steps of bankruptcy filings can vary from state to state depending on their law. But there are two parties that remain constant in all bankruptcy cases; this is the presence of the debtor and creditor. The debtor is the party who owes money to the creditor. Debtors can be private individuals or corporations.
You should be aware that there are two different types of debts including secured and unsecured. Below are further discussion on this topic:
• Secured debts – creditors will have legal rights to your property when you fail to make the payment. An example of a secured debt is your mortgage; this is because by loaning you a certain amount of money for your home, the bank will get a lien to it. When you stop making the mortgage payments, the bank can foreclose. However, in business, secured debts may be more complicated because creditors get a lien on intangible assets such as trademarks, intellectual property, and patents.
• Unsecured debts – this is basically the opposite of secured debts because the creditor has no lien on any of your properties.
If you intend to file for bankruptcy, you need to realize that there are four types of bankruptcy. Chapter 7 and Chapter 13 bankruptcy are the most common types. But you can use Chapter 11 and Chapter 12 bankruptcy as well.
• Chapter 7: This is known as the liquidation bankruptcy; when people say that “I’m filing for bankruptcy”, they are referring to Chapter 7 bankruptcy in most cases. You will basically sell off any non-exempt properly in order to repay creditors to the fullest extent as possible. Individuals, partnerships, and corporations are eligible for this type of bankruptcy.
• Chapter 11: this involves a very complex filing process. In this type of bankruptcy, the debtor will maintain all ownership of his property, continue to function, and a reorganizational plan is worked out. In the past, businesses that use the Chapter 11 had an almost unlimited period of time to come up with their payment and reorganization plan but since 2005, a 120-day limit was imposed.
• Chapter 12: a very specific plan for farm owners. The debtor retains control over his assets but he needs to have a three to five year repayment plan. There is also a limit to the debt involved.
• Chapter 13: also known as the wage earner’s plan. The individual filing for bankruptcy still needs to pay off his debts within three to five using his regular source of income.
