Types of bankruptcy

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When a debtor cannot pay his or her credits, they opt for filing a bankruptcy case. There are various kinds of bankruptcy methods, and each is labeled by the heading of the chapters of the Bankruptcy code, in which they appear. There are seven different types of bankruptcies:

Chapter 7 bankruptcy:

This type of bankruptcy is mainly used by individuals. In this bankruptcy, the debtor is eased off all the payments he has to do. In this bankruptcy, all the assets of the debtor are transformed into liquid and all his debts are then cleared. It gives the debtor a fresh start for his life.

Chapter 9 bankruptcy:

Chapter 9 Bankruptcy is known as the municipality bankruptcy. The principal use of this type of bankruptcy is to give a defaulter, municipality protection from the people and organizations it can’t pay the debt to. Reorganization of debt is done in this type of bankruptcy but only the municipality has the right to file a relief in this case.

Chapter 11 Bankruptcy:

Chapter 11 bankruptcy is known as the corporate bankruptcy or the reorganization bankruptcy. When business organizations are unable to pay their creditors or the claims of the creditors when exceed what the business organizations can pay, then the business organizations file for chapter 11 bankruptcy. In this bankruptcy, a reorganization of debts are as well the assets in possession of the business organizations are done, in order to help them relieve from a part of their debt and the remaining can be paid in best accordance to their ability.

Chapter 12 bankruptcy:

This bankruptcy is specially planned for the farmers or fisherman who has a regular annual income. We all know that the most of the farmer’s life goes off paying debts and hence this particular bankruptcy was designed to enable them to file a case and repay their debts or a part of it in proper order without being tortured.

Chapter 13 Bankruptcy:

This particular bankruptcy can be filed any time and enables individuals to even pay off their debt along with keeping their property intact. The individual needs to have a steady job and a regular income. In this type of bankruptcy, they have the option to pay off their debts over a period of three to five year and as well keep the property.

Chapter 14 bankruptcy:

Chapter 14 Bankruptcy is known as the involuntary bankruptcy. In this bankruptcy the creditors file the bankruptcy petition against their debtors. This bankruptcy is very rare, and most of the rare cases are seen in the corporate world rather than with individuals.

Chapter 15 Bankruptcy:

This is a newly added chapter in the Bankruptcy code or may even be termed as the new type of bankruptcy which is designed for international state of affairs. This bankruptcy gives rights to foreigners to take part in the state’s bankruptcies cases.

The above mentioned are the different types of bankruptcies available of which chapter 7 and chapter 13 bankruptcies are very important and are more commonly used.