For individuals there are two types of bankruptcy including Chapter 7 in which all of their debts are essentially eliminated and Chapter 13, in which their debts are paid off over a 5 year period of time, supervised by a trustee from your court.
Businesses can use a Chapter 11 bankruptcy during which they can reorganize their debt until it's paid off or renegotiated in order to remain in business until their financial house is back in order.
A quick consultation with a bankruptcy attorney will help determine which of the types of bankruptcy the individual qualifies to file under. There are certain tests administered to determine if the individual qualifies to file Chapter 7 under the new bankruptcy laws.
The main part of the test for an individual will consist of an income calculation to find out whether or not the individual has a monthly income that is higher than the state average, if he or she does the individual would then have to file under chapter 13 and would not be allowed access to chapter 7.
With a chapter 7 bankruptcy all debts whether secured or unsecured can be eliminated. But sometimes the court will seize some assets to be sold off so that at least some of the individual's debt can be satisfied.
Of the two types of bankruptcy, Chapter 7 offers the most financial relief for the creditor.
Paying Off Debt Over Time
If the individual has to file for chapter 13 instead of chapter 7 they will be required to send monthly payments to a court trustee, the court trustee will then send out payments to any creditor who is listed as part of the payment plan.
Out of the two individuals types of bankruptcy, chapter 13 and chapter 7, chapter 13 will help the individual to make good all their financial obligations and at the same time hold back creditors from attempting to take collection actions against the debtor in question.
In the past, a lot of people may have started out in Chapter 13 bankruptcy and found they were unable to meet the obligations and so moved into Chapter 7.
However since the new bankruptcy laws came into circulation, the question of whether or not you can qualify for chapter 7 of 13 bankruptcy is decided by the courts means test.
If the person has the means, current income level, to pay off their debts, they are restricted to filing for Chapter 13 whether they like it or not.
Whether you file for chapter 7 or 13, any assets or initial payments will first go to creditors with priority access. Priority access will be granted to but not limited to, student loans, part income taxes and generally most other government obligations you may have.
As soon as all of your creditors that have qualified for priority access have had all debt paid, the paying of all your unsecured creditors will then start to take place.
Remember that regardless of the type of bankruptcy you can file under, filing for bankruptcy should always be your last result, since it will stay on your public record for a long time to come!
