What are Some Different Bankruptcy Options?

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  • Written By: M. DePietro
  • Edited By: Bronwyn Harris
  • Last Modified Date: 22 January 2020
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Bankruptcy is a legal process to help individuals or businesses who cannot pay their current debt. There are a few different bankruptcy options depending on the individuals or businesses situation. Bankruptcies are filed in federal court and there is a fee to file.

Bankruptcy options for personal debt include a Chapter 7, which is the most common type of bankruptcy. This involves a liquidation of assets. After an individual shows proof of debt, income and assets, the bankruptcy court reviews the financial records and determines if the debt to income ratio is high enough to grant a bankruptcy.

Certain assets may be seized by the court, then sold and the money is divided up and given to the creditors. The remaining debt would be eliminated through the court. Certain types of debt are prohibited by law from being eliminating, for instance, child support, federal student loans or taxes owned to the Internal Revenue Service are not eliminated.

Some assets are protected by state and federal law and considered exempt from liquidated in a chapter 7. For example, retirement accounts, such as a 401(k) are protected. Although exemptions may vary, they usually include a car, primary home, clothes and furniture.


Other personal bankruptcy options include a chapter 13. This is different from a chapter 7, because it requires a percentage of the debt be repaid and is considered a reorganization of debt. Similar to a chapter 7, all financial records need to be provided to the court and reviewed. Individuals who want to keep all their assets may decide on this option.

In a chapter 13 bankruptcy, the court decides what percentage of the debt must be repaid. That percentage is broken down into monthly payments made to the bankruptcy trustee, who pays the creditors. Individuals who file a chapter 13 usually have three to five years to pay off the bankruptcy debt.

A chapter 11 bankruptcy is similar to a chapter 7, in that assets of the business are sold and the money is divided up and given to creditors. Although a chapter 11 bankruptcy can also be filed by individuals, it’s more common for businesses. Businesses may be allowed to continue to operate even after they file a chapter 11.

A chapter 12 bankruptcy is a reorganization bankruptcy that works the same way as a chapter 11. It is specifically for farm owners, and allows liquidation and repayment of debt. This option was intended for farmers who were unable to pay their debt but did not want to lose their farm.

A bankruptcy usually remains on the debtor’s credit report for ten years. However, filing a bankruptcy may be the best option for certain individuals or businesses. Various types of bankruptcy options can provide a fresh financial start. Regardless of the type of bankruptcy filed, it’s important to learn from past financial mistakes to avoid repeating them.



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