What is a Chapter Bankruptcy?

From a legal standpoint the definition of any chapter bankruptcy is the inability of an individual or organization to pay its creditors. When someone gets into a situation where they are unable to pay their bills they often turn to personal bankruptcy to fix their problems. When someone files for bankruptcy they must submit a petition to the court requesting to have their debt wiped cleaned or reorganized with a payment plan. The idea behind this is to give individuals and businesses a chance to have an immediate clean slate or the help they need to slowly pay off their debt.

A chapter bankruptcy can be voluntary (filed by the debt0r) or involuntary (filed by the creditor). The majority of filings are voluntary but there are a few circumstances where creditors often file a petition with the court to force someone into bankruptcy.

Currently there are six different types of chapter bankruptcies under the United States Bankruptcy Code. The first of these types is a chapter 7. A chapter 7 bankruptcy provides basic liquidation for individuals and businesses. The second type of is a chapter 9. The chapter 9 bankruptcy laws state that they are only for municipalities. This means that they are only for government entities such as cities, counties, and states. The third type is a chapter 11. A chapter 11 bankruptcy filing is primarily used for business bankruptcies but can also be used by individuals who have a significant amount of debt. Chapter 11 bankruptcies will not wipe out someones debt but merely reorganized it and set up a payment plan. The fourth type of filing you can make in bankruptcy court is a chapter 12. Chapter 12 bankruptcies are very specific and can only be used by family farmers and fishermen. The fifth type you can petition for in US bankruptcy court is a Chapter 13. Chapter 13 bankruptcies are for individuals and simply setup a reorganization and payment plan for individuals with a regular income. The sixth and final type of bankruptcy is a chapter 15. Chapter 15 bankruptcies are for ancillary and international cases.

Chapter Bankruptcies are a very interesting idea and offer individuals and business an opportunity for a new start when they have gotten themselves to far into debt. The decision to file a bankruptcy is a major decision in someones life and everyone should seek professional advice when trying to decided whether it is right for them or not. For some people it is inevitable and they are almost forced to file a bankruptcy but for others it is a choice of what you want to do. Bankruptcy filings have serious affects on peoples credit and should only be petitioned for in the most extreme cases.

For more information on chapter bankruptcies feel free to take a look around the rest of my blog. Also, if you have any questions leave a comment or email me at personal.financial.advising@gmail.com (I will get back to a comment quicker).