Finance & Loans

Types of Bankruptcy

Bankruptcy (or insolvency) simply means that a particular entity cannot pay back his creditors, and while this is not a cheerful time for the entity in question, there are different types of bankruptcy which are applicable to any of these entities, and that they have to follow.

So, here are the different types of bankruptcy:

Type #1: Chapter 7

This one is the most common among the different types that are available, and is referred to as “personal bankruptcy” where the person is relieved of all unsecured debts. The prevention of all further collection efforts by debtors is also a part of this agreement as well. And while businesses can also opt for this kind of bankruptcy

Type #2: Chapter 11

This is a type of bankruptcy that is open to both individuals as well as businesses but it is primarily for businesses that wish to reorganize. Since there are complexities involved in this type of a bankruptcy, attorneys are required to carry it out.

Type #3: Chapter 12

This type of bankruptcy is specifically for family farmers only and which allows them to pay back their debts in time.

Type #4: Chapter 13

Also known as reorganization bankruptcy, this type of bankruptcy allows debtors to keep assets such as a mortgaged home or a car that they might lose due to the inability for one to pay it back. Of course, the person who owes this debt has a period of three years to pay it back.