The Bankruptcy Code is the informal name of the federal bankruptcy law; 11 U.S.C. §§ 101-1330. Bankruptcy laws were created to help people who are no longer in a financially secure situation a chance to start over.
There are several different types of bankruptcy referred to their Chapter in the actual federal law.
Chapter 7 is for liquidation which is the sale of a debtor’s nonexempt property and the distribution of what is earned back to the creditors.
Chapter 9 is for reorganization for municipalities such as cities, towns, villages, counties, and school districts.
Chapter 11 is for reorganization for corporations or partnerships. A debtor usually proposes a plan of action to keep its business alive and the scheduled payments to creditors.
Chapter 12 is for farmers and fisherman and readjusting their debts.
Chapter 13 is for normal wage earners. A debtor is allowed to keep property and use their disposable income to pay off creditors over a three to five year period.
Chapter 15 is for cases dealing with cross-border insolvency. Insolvency is a fancy way of saying the inability to pay debt.
How Do You Know Which Chapter To File?
A bankruptcy judge and a court trustee examine the assets and liabilities of an individual or a business who cannot pay off their debts. Then they determine which debts the individual or the business will no longer need to pay legally. Therefore, they will determine under which bankruptcy chapter to file.
Bankruptcy does not qualify for student loans, alimony and child support, debts that occur after bankruptcy is filed, taxes, debts from settlements and verdicts.
Bankruptcy will also remain on your credit score for 7-10 years and might prevent you from applying for more lines of credit or applying for jobs. It is only advised for you to file bankruptcy if you are more than $15,000 in debt otherwise the damage to your credit score might be significant.