Boca Raton Bankruptcy Lawyers

Understanding the Different Types of Bankruptcy

For individuals who find themselves in a state of financial crisis, filing for bankruptcy can often be a viable way to eliminate certain types of debt or keep some assets secure. The process can often be confusing and complicated, as there are several different types of bankruptcy, each with a specific purpose and process.

According to US Bankruptcy Code, there are six different types of bankruptcy:

• Chapter 7: basic liquidation for individuals and business
• Chapter 9: municipal bankruptcy
• Chapter 11: rehabilitation or reorganization (usually for business debtors)
• Chapter 12: rehabilitation for family farmers and fishermen
• Chapter 13: rehabilitation with a payment plan for individuals with a regular source of income
• Chapter 15: ancillary and other international cases

The three most common types of bankruptcy for individuals and businesses are Chapter 7, Chapter 13, and Chapter 11.

Chapter 7

With Chapter 7 bankruptcy, a debtor will surrender any and all non-exempt property to a bankruptcy trustee. This trustee will then liquidate the property and distribute the money gained to the debtor’s various creditors, discharging some of the debtor’s debt. Chapter 7 bankruptcy allows a debtor to discharge most of his or her unsecured debt.

An individual/business can only file for Chapter 7 bankruptcy once every eight years.

Chapter 13

Unlike Chapter 7 bankruptcy, individuals filing for Chapter 13 are able to retain ownership and possession of some, or even all, of his or her assets (e.g. home, car, etc.). Individuals filing for Chapter 13 are those that have a regular source of income, and as such, the individual filing will have to agree to pay back creditors with future income, usually over a period of three to five years, in order to keep all property.

Chapter 11

Chapter 11 bankruptcy is primarily intended for businesses in financial distress. Under Chapter 11, the debtor may maintain ownership and control of his or her assets, and is given the term “debtor in possession” (or DIP).

The DIP maintains control of the business, while creditors and the debtor work to create a plan to pay back the creditors. Once a plan is reached, the creditors can vote on the plan. If the plan passes the vote, the debtor will pay according to timeline of the plan and continue to run his or her business. If the plan does not pass the vote, more requirements may be added and the plan may be re-worked.

If you or someone you know is considering filing for bankruptcy, contact the Boca Raton bankruptcy lawyers of Eric N. Klein & Associates, P.A. today by calling 561-353-2800.