What types of Personal Bankruptcies are there?

What types of Personal Bankruptcies are there?

There are 3 types of voluntary personal bankruptcy that can be filed.  Chapter 7, 11, or 13.  There is also a chapter 12 bankruptcy for Family Farmers and Family Fisherman. And there is a type of chapter 11 for small business owners or single asset realty companies. And there are also involuntary bankruptcies that people can be forced into.

The bankruptcy code is found at Title 11 of the United State Bankruptcy code. 

What is a Chapter 7 Bankruptcy used for?

A chapter 7 bankruptcy is used to get rid of personal debt and start fresh financially speaking.  This is normally filed by people without large incomes or more than 50% of their debt is business debt. Normally most people get to keep their home and car if they do not have too much equity in these items.   If people do not have business debt, they may make too much income to qualify for a chapter 7 bankruptcy and instead have to file a chapter 13 bankruptcy.

What is a Chapter 13 Bankruptcy used for?

Chapter 13 is a type of bankruptcy where people repay their debts over a 3 or 5 year period.  People use chapter 13 bankruptcies to repay debt that is out of hand when they do not qualify for a chapter 7, or are trying to repay a secured debt like a home or a car. After the debtor makes payments for the 3 or 5 year period any unpaid debts that can be discharged will be forgiven like in chapter 7.  There are more types of debts that are forgivable in chapter 13 than in chapter 7.

There debt limitations on filing a Chapter 13 bankruptcy

There are debt limits when filing chapter 13 and these normally change a little bit every year.  Currently, as of April 2019, a debtor cannot have over $419,275 in unsecured debts which is up from $394,725 from 2018 and cannot have over $1,257,850 in secured debts which is up from $1,184,200 in 2018.

When would a person file a chapter 11 Bankruptcy?

When a person has too much debt to file a chapter 13 and still wants to repay their debts or avoid having their assets sold in chapter 7, they can look into filing a personal chapter 11 bankruptcy.  Chapter 11 bankruptcies are also used for businesses, including a small business filing and single asset real estate. Even a trust can declare bankruptcy

 What court handles Bankruptcy?

Bankruptcies handle in the federal courts, and the rules are outlined in the US Bankruptcy Code. These rules are affected by the state where the Bankruptcy is filed and the rulings of the bankruptcy courts and appellate courts in their district. Not every ruling for one bankruptcy court automatically apply for other ones. So different states and federal courts can rule on the same set of facts differently when interpreting the law based on precedent in that court.

Even though New York and New Jersey are next-door neighbors, they are in different federal districts and have many laws related to bankruptcy that are handled differently.

As an example, New Jersey tax liens are a common issue for bankruptcies in New Jersey.  And, knowing how to handle them in a New York bankruptcy can become a sticking point if your bankruptcy attorney does not understand the law of both states.

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