My main questions about bankruptcy were this—how does one file bankruptcy and how do they stay on track (or even successful) after filing for a bankruptcy. What are each of the different types of bankruptcies (i.e.: Chapter 7)?
I quickly found out that filing for bankruptcy is not the end of the world, and it is not exactly a terrible thing. It means that there are definitely problems, but they are problems that an individual or company can overcome. Bankruptcy is simply a process that is governed by the federal courts and is aimed at eliminating or minimizing debts. The two main types of bankruptcy are Chapter 7 and Chapter 13. Filing for Chapter 7 bankruptcy can be described as liquidation. When you file, the bankruptcy court orders an “automatic stay”, which temporarily allows the person or business to not pay off any debts and the creditors to not be able to collect until the order is dropped. At this time, if necessary, then liquidation can begin and it is possible that the individual could have to sell their house or other values in order to pay off the debts. Chapter 13, on the other hand, is a strategy used by people that are not completely in over their heads. Chapter 13 employs a “plan” attitude. In this type of filing, all debts are still there, but a plan is formulated with the bankruptcy court to figure out how to pay off the debts. Sometimes the debts must be completely paid back and sometimes the debts will only have to be partially paid back (Bankruptcy FAQs, 1).
The main type of bankruptcy filing, and the type that is most common in current events, is Chapter 11. Chapter 11 is very similar to Chapter 13; however, Chapter 11 is primarily for companies and businesses. This type of filing is often described as a “reorganization” fi ...