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Different types of Bankruptcy

If you face debts that seem incapable of being negotiated, filing for personal bankruptcy might be an option to consider. But before you rush off to file a petition for bankruptcy with the local courthouse, make sure you know exactly what that means.
There are two types of bankruptcy petitions you can file:
  1. Chapter 7 and
  2. Chapter 13.
Each type has a different purpose with a different outcome. Which type of bankruptcy you should file is dependant on your personal financial situation.

Total Bankruptcy Filings
by Bankruptcy Chapter Calendar Years, Period Ending December 31, 2000-2005
Chapter
Year 7 11 12 13
2005 1,659,017 6,800 380 412,130
2004 1,137,958 10,132 108 449,129
2003 1,176,905 9,404 712 473,137
2002 1,109,923 11,270 485 455,877
2001 1,054,975 11,424 383 425,292
2000 859,220 9,884 407 383,894

Filings by Chapter Of the total number of bankruptcy filings for the 12-month period ending December 31, 2005, there were 1,659,017 Chapter 7 filings, up 46 percent from the 1,137,958 Chapter 7 filings in the same period in 2004. The next largest group of filings was Chapter 13 filings at 412,130, down 8 percent from the 449,129 filings in CY 2004. Chapter 11 filings fell 33 percent to 6,800 from the 10,132 filings in CY 2004. In CY 2005, Chapter 12 filings rose to 380 from the 108 filings reported in CY 2004.
source:uscourt-3/26/06
Bankruptcy Chapter 7 :-
Chapter 7 of bankruptcy involves the seizing and liquidation of your assets. This includes real estate, stocks, bonds and valuable property. Once liquidated, the proceeds are used to pay off the various creditors you owe. Property exempt from Chapter 7 bankruptcy includes vehicles worth less than $1500, most household furnishings and goods and clothing. You are also entitled to retain $18,450 worth of equity in your home. The goal here is to leave you with enough to make a fresh start after bankruptcy is declared so you dont end up completely destitute. At this point, you are discharged of all remaining debts. Once bankruptcy is filed, your creditors must cease from any lawsuits, wage garnishing, letters or telephone calls compelling you to pay.

Bankruptcy Chapter 13 :-
Chapter 13 bankruptcy serves not to discharge you from your debts but rather to reorganize them and repay them within three to five years. This option is preferable for people with property and assets they want to keep and/or a predictable source of income allowing them to repay their debts and maintain a standard of living. This type of bankruptcy allows the debtor to keep their property and file a repayment schedule with the court. If you file for Chapter 7 bankruptcy but a judge deems you fit to pay, you may be forced to re-file under Chapter 13. This could happen for any number of reasons, from assessment of your income to the value of your property.

Chapter 7 bankruptcy petition may be denied :-
Your Chapter 7 bankruptcy petition may be denied if a judge deems you fit to pay, in which case you may re-file a Chapter 13 bankruptcy petition. A Chapter 13 does not discharge you of your debts, but rather reorganizes them through the enactment of a court ordered repayment schedule where you repay your creditors over a period of three to five years. Chapter 13 bankruptcy is the preferred option for people who wish to retain control of their assets and/or have a reliable and prolonged source of income.

No matter how you slice it, filing for bankruptcy will do damage to your credit rating. However, most people who file for bankruptcy already have poor credit ratings that are unlikely to get much worse from declaring bankruptcy. Your bankruptcy will be listed in your credit report for 10 years after the date of filing. Ultimately, the opportunity to make a fresh start by wiping out existing debts and rebuilding credit is often preferable. Before making the decision to file for bankruptcy, it is a good idea to talk with a lawyer, financial advisor or credit counselor to ensure you are making the right decision for your long-term financial future.


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