Finally Nd A Formula For The Delta Of This Option The Chapters of Bankruptcy

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The Chapters of Bankruptcy

It’s a common misconception that if a person files for bankruptcy, their house, car, and the clothes off their backs will be sold to creditors to pay off debts. Actually, this is not the case. Often times, a person retains full ownership of their home, car, and family when they file for bankruptcy.

In the United States, there are four types of bankruptcy that an individual or company can file. They are chapters 7, 11, 12 and 13. The most common chapters for individuals are 7 and 13. While Chapter 11 is generally related to businesses, and Chapter 12 is specifically for farm owners.

Which chapter of bankruptcy a person qualifies for depends on a variety of variables. This is determined by a “means test,” which is a formula that includes a person’s income and the total amount of secured and unsecured debts. Income is determined by how much money a person has earned in the last six months. Secured loans are usually car loans or mortgages, property that has a lien on it. Whereas, unsecured loans are usually credit card or medical bill loans.

Chapter 7

When people say they are filing for bankruptcy, they are usually filing Chapter 7. This is the most frequently filed bankruptcy chapter. This is also known as a “liquidation” bankruptcy. Essentially, Chapter 7 liquidates all valuable assets to pay off the debt. A court-appointed trustee will appraise the value of a person’s assets and then sell them to pay off creditors.

Trustees cannot sell assets that are considered “exempt assets.” Exempt property typically includes clothing, household goods, appliances, jewelry (up to a certain value), personal effects, such as toothbrushes and electric razors, business or professional equipment, and a certain amount of equity acquired in a car or home.

It is not unusual for the trustee to determine that the person filing for Chapter 7 has nothing worth selling. Almost all discounts are considered.

Eventually, all debts except secured debts such as car loans, mortgages, child support or student loans are discharged. A debt acquired by fraudulent or malicious means is not recoverable. The entire process takes four to six months.

After filing a Chapter 7 bankruptcy, a person is not eligible to file for bankruptcy again for eight years.

Chapter 13

Chapter 13 is the second most popular form of personal bankruptcy filing. This is sometimes called a “wage earning plan.” Unlike Chapter 7, a person filing for Chapter 13 agrees to pay off all or some of their debts over a period of three to five years.

When a person files for Chapter 13, they must propose a payment plan detailing how and how much they are going to pay creditors over the next three to five years. The minimum repayment amount depends on how much a person earns and how much debt they have.

To qualify for Chapter 13, a person must have stable income, less than $922,975 in secured debt and less than $307,675 in unsecured debt.

Chapter 11

Chapter 11 is generally reserved for businesses or individuals whose secured or unsecured debts exceed the limitations in Chapter 13. This is a very complicated bankruptcy chapter; Many large corporations such as Enron, Kmart and Delta have filed for Chapter 11 bankruptcy.

Chapter 11 allows a business to continue normal operating procedures while their case is being reviewed. Companies can only make ordinary sales and purchases that are part of a normal business day. During this period the business cannot sell part of the company, sell a large piece of equipment or assets, or undergo a major expansion.

Like a Chapter 13, these companies or individuals suggest a reorganization and repayment plan. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005; They have 120 days to propose this plan.

As a result, a company filing Chapter 11 may have to close locations, lay off employees or renegotiate union contracts. If it appears that the company can no longer operate profitably and make payments, they can be converted to Chapter 7.

Chapter 12

A Chapter 12 bankruptcy is very similar to a Chapter 13 except that it is designed specifically for those operating farms. To qualify, at least 80 percent of the loan must be related to agriculture. Only a few hundred people file for Chapter 12, compared to the hundreds of thousands of people who file for Chapter 13 each year.

Bankruptcy is not a quick fix for all credit problems. There are many adverse effects and it is suggested to use bankruptcy if it is the only remaining option. Bankruptcy affects credit, which raises interest rates and prevents someone from qualifying for loans on cars or homes.

Filing for bankruptcy can be one of the most difficult decisions a person can make. They must accept that they can no longer pay their debts and need to reorganize or eliminate them. Bankruptcy is a last resort to help people get out of the credit hole and get back on their feet.

Sources:

HowStuffWorks, Inc. (2006). Howstuffworks ‘How Bankruptcy Works’. Retrieved July 25, 2006, from http://money.howstuffworks.com/bankruptcy.htm

Find the law. (2006). Retrieved July 25, 2006, from http://bankruptcy.findlaw.com/

Chapter 7 – Bankruptcy Basics. Retrieved July 26, 2006, from http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/chapter7.html

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