Explaining the best and worst sides of each bankruptcy Chapter

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Chapter 7

Best aspects

It brings instant debt relief, means the debtor receives a full discharge on all debts. The bankruptcy under Chapter 7 allows keeping some property (a cheap car, clothing, and other personal stuff), so the debtor is not left with nothing in his hands. Chapter 7 is the easiest to apply and the simplest one in terms of the bankruptcy process in the court. Therefore, many individuals decide not to hire an expensive bankruptcy attorney and instead file “pro se” (on their own).

Yet, probably the best thing about Chapter 7 is an Automatic Stay protection that comes in force the same moment the petition if the debtor is accepted by the court.

Chapter 7

Worst aspects

Like all other bankruptcy Chapters, this one implies the credit score of the debtor will be ruined to the zero, and all records about the bankrupt status will be available for public access during 10 years. Also, in spite of Chapter 7 is purposed to wipe out all debts instantly, it doesn’t discharge tax debts, alimonies, child support and Student Loans.

Another con of Chapter 7 is that it doesn’t free the co-signers of debtor’s loans from financial liabilities to creditors, even is the prime debtor receives debt forgiveness.

Chapter 13

Best aspects

For those who are not ready to give up on their financial status and ruin credit score, there is a Chapter 13 bankruptcy that allows a debtor postpone debt repayment for a period up to 5 years.

Chapter 13

Chapter 13 is recommended for those who are not in a catastrophic financial position, but still is incapable to make all debt repayments. This type of bankruptcy doesn’t, in fact, make a person bankrupt, but gives a chance to reorganize debts with the right to delay payments (when the person will recover financially).

Worst aspects

Even if you feel you need to get rid of your debt burden due to your hopeless financial situation, Chapter 13 will not liquidate your debts. You will still be obliged to repay your loans to creditors, but with the delay and lower interest rate. Above that, you will have to develop an excellent debt reorganization plan to convince your creditors you’ll be in a position to repay loans in the future.

Chapter 9

Best aspects

Municipalities, that are financially distressed and cannot manage their debts, can file for Chapter 9 bankruptcy to avoid creditors’ claims and get back on track over time. The best what Chapter 9 can do for those municipalities is to allow them to develop a repayment plan with the significantly reduced interest rate, so municipalities can gradually return borrowed money without freezing their activity.

bankruptcy

Worst aspects

Only specific municipalities can file under Chapter 9, such as counties, cities, school districts. It also does not forgive debts, but rather makes it easier for financially distressed municipalities to return money to creditors.

Eligibility criteria are quite strict, so a municipality has to be in a real financial distress to qualify for Chapter 9.

Chapter 11

Best aspects

Chapter 11 is specially designed for businesses that experience financial hardship. A bankruptcy under this Chapter is very popular amongst businesses in all spheres and here is why: even if a business owner file for bankruptcy and the petition is approved, the business entity (a Corporation) may not freeze or terminate its financial activity. Moreover, it is allowed to execute all operations that are aligning with the main purpose: to earn money the soonest possible in order to satisfy creditors’ claims. Chapter 11 for business works on the same principle as Chapter 13 for individuals.

Chapter 11

Worst aspects

There is no debt forgiveness under Chapter 11, and, if the Company is failed to repay a secured loan (or several loans), its assets and property are the subjects of foreclosure in favor of creditors. Bankruptcy status doesn’t protect a business from collateral withdrawal.

Chapter 12

Best aspects

These fisheries and farms who are family businesses and experience catastrophic lack of funds to satisfy creditors claims may file under Chapter 12. A reorganization bankruptcy (which Chapter 12 really is) allows farmers to keep their business activity without being disturbed by collectors and creditors.

Bankruptcy

Since the petition is accepted by the court, the farm (or fishery) is protected by the government from any creditors’ actions.

Worst aspects

Fisheries and farms have to prove to the U.S. bankruptcy court that the loss that they took was a direct result of “unlucky” farm’s or fishery’s business activity. For example, if there were seasonal troubles or severe weather conditions that made the farm suffer, it is a criterion of eligibility for Chapter 12 bankruptcy.

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