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Bankruptcy 101

For many, declaring bankruptcy may seem like a daunting task. It may also symbolize failure and hitting rock bottom. While media and news reports may seem to confirm those fears, many don’t realize that bankruptcy can actually be a brand new start. When financial obligations become far too big to handle, bankruptcy can represent a brand new start.

This, of course, doesn’t change the fact that the bankruptcy process is beyond confusing for most of us. A few hours of Internet surfing helped me understand the basics of the bankruptcy process. Check out what I found below!

Chapters of Bankruptcy

There are four filings of bankruptcy, which all are located until Title 11 of the Federal Bankruptcy Code. The four chapters are Chapter 7 – Liquidation, Chapter 11 – Reorganization, Chapter 12 – Adjustment of Debts of a Family Farmer with Regular Annual Income, and Chapter 13 – Adjustment of Debts of an Individual.

Chapter 7

Chapter 7 is the most common bankruptcy filing, and because it is so common, it is usually what individuals think of when they hear the term “bankruptcy.”

With this bankruptcy filing, the debtor (the person owning the debt) completely dissolves all their assets and starts over completely. This chapter basically outlines the process of liquidation, which is when a debtor’s property (thats is not exempt) is sold and the proceeds raised from that sale are given to various creditors.

As the above sentence suggests, there are certain forms of property that are exempt from the bankruptcy process. A lawyer can let you know what, if any, of your property is exempt from the process.

Chapter 12 and 13

Chapters 12 and 13 are very similar, except for the fact that Chapter 12 is for family farmers and Chapter 13 is for individuals. Under these filings, those with steady incomes and debts less than $269,250 can file to create a repayment plan with the help of their trustee.

Individuals choose to file under Chapter 13 for a couple of different reasons. The biggest one is that under this filing, and individual does not have to go through the liquidation process. They are allowed to keep all their property. The repayment plan also allows the debtor to (usually) pay back less than what they actually owe — so it may work out better for some people to choose Chapter 13 bankruptcy.

Chapter 11

The final chapter to discuss is Chapter 11. This chapter is very similar to Chapter 13 — the main difference being that there is not a limit on how much money can be owed by the debtor, in contrast to the $269,250 limit in Chapter 13 bankruptcy.

Many large corporations file under this chapter, but individuals are able to file under this chapter as well.

No matter what option you may be considering, I hope this blog post gave you some basic information about the bankruptcy process. Remember — only an attorney like Erin Shank, the Central Texas Bankruptcy Attorney can give you sound legal advice and you should reach out to one if you plan on filing for bankruptcy!

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