Bankruptcy (Liquidation)
Also known as “liquidation bankruptcy,” Chapter 7 involves the sale of a debtor’s non-exempt assets by a trustee to repay creditors. Any remaining eligible debts are typically discharged, providing a fresh start for the debtor. This type of bankruptcy is available to individuals, businesses, and partnerships.
Features
- Liquidation of Assets: Non-exempt assets are sold to repay creditors.
- Debt Discharge: Remaining eligible debts are typically discharged.
- Means Test: Individuals must pass a means test to qualify.
Advantages
- Fresh Start: Offers a clean slate by eliminating most unsecured debts.
- Speed: Typically resolves relatively quickly, often within a few months.
- No Repayment Plan: No need to commit to a repayment plan.
Disadvantages
- Asset Loss: Non-exempt property may be sold to repay debts.
- Credit Impact: Bankruptcy stays on credit reports for up to ten years.
- Qualification Criteria: Not everyone qualifies due to income restrictions.
Example
John, overwhelmed by credit card debt and medical bills, files for Chapter 7 bankruptcy. He sells his non-exempt assets, and remaining eligible debts are discharged, giving him a fresh financial start.
Types of Bankruptcies | Features & Advantages
Bankruptcy is a legal process that individuals or businesses go through when they cannot repay their debts. It provides a way for them to either eliminate their debts entirely or develop a plan to repay them over time, depending on the type of bankruptcy filed. This process is often overseen by a court and involves assessing the debtor’s assets, liabilities, and financial situation to determine the best course of action. Bankruptcy laws vary by country and can have significant implications for the debtor’s financial future.
Key Takeaways:
- Bankruptcy offers a pathway for individuals or businesses overwhelmed by debt to obtain relief.
- While bankruptcy can have long-term consequences such as impacting credit scores, it also presents an opportunity for financial rebuilding.
Table of Content
- Types of Bankruptcies
- 1. Chapter 7 Bankruptcy (Liquidation)
- 2. Chapter 13 Bankruptcy (Repayment Plan)
- 3. Chapter 11 Bankruptcy (Large Reorganization)
- 4. Chapter 12 Bankruptcy (Family Farmers)
- 5. Chapter 9 Bankruptcy (Municipalities)