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All About Bankruptcy, Part 2

This post is the second in a three post series on bankruptcy. If you haven’t already read part 1, I recommend you do before continuing,

Bankruptcies fall under two general categories – liquidations and reorganizations. In a liquidation, the debtor’s assets or property are sold off in order to repay debt. In a reorganization, the debtor gets to keep their property, but must adhere to a plan and schedule of debt repayment.

Chapter 7 and chapter 13 bankruptcy

When an individual or business files for bankruptcy, they do so under a particular chapter of the bankruptcy code. There are several chapters, but the two used by the majority of individuals and businesses are chapter 7 and chapter 13.

Generally speaking, chapter 7 bankruptcies fall under the category of liquidations, and chapter 13 bankruptcies fall under the category of reorganizations. If you file chapter 7 as an individual, you will have to sell off personal property to repay your debt. If your business files chapter 7, you will likely have to close the business and sell off some or all of its assets. chapter 13 bankruptcy, on the other hand, allows an individual to keep their property and a business to stay open. However, the debtor will have to adhere to their repayment schedule. They will also have to open their books to the court and their creditors during the repayment period, which is often up to 5 years.

For more information on the bankruptcy chapters, check out our page.

What types of debt can and can’t be discharged in a bankruptcy?

The benefit of bankruptcy is that it allows the debtor to discharge many types of debt. These include:

  • Credit card debt – this is a big one for many people
  • Medical bills – a very common cause of financial distress, especially after an accident or unexpected illness
  • Lawsuit judgments against you – except in certain cases involving DWI
  • Debts governed by current leases and contracts – in the case of business bankruptcies, the court may require a partial repayment of contract and lease debts.
  • Personal loans – including payday loans

There are also a few more types of debt that can be discharged in a chapter 13 filing, but not in a chapter 7 filing.

Check back soon for All About Bankruptcy, Part 3

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IMPORTANT: Free consultations only apply for Chapter 7 and Chapter 13 bankruptcy, or similar.