Bankruptcy is the federal court procedure that is specially made to help the businesses and individuals eliminate all debt or repay it under the safeguard of bankruptcy court. Bankruptcies can usually be defined as reorganizations or liquidations. Involuntary bankruptcy is a condition where the creditor can file bankruptcy petition against the debtor for recovering a part of due amount. Usually in the majority of bankruptcy cases, it is actually initiated by a debtor, this is called voluntary bankruptcy.
Documentation required under new bankruptcy laws has increased. For instance, a debtor needs to offer extra information regarding his or her expenses and income. In case the expenses exceed IRS allowance, specific circumstance document needs to be submitted. Also, the statement of accuracy requires submission on time along with the special circumstance documentation. The two main kind of bankruptcy include the chapter 7 and chapter 13.
Chapter 13 and 7 bankruptcy
Chapter 13 is the common type of Reorganization bankruptcy. The consumers get to know all of their property but one must make monthly payments for about 3 to 5 years for repaying some or all of the debt. On the other hand, chapter 7 bankruptcy is of the liquidation variety. If the debtor owns property which is not an example under the state’s laws, the property can be taken away and sold to pay some of the debt. Both the bankruptcies have different rules as well as exceptions about what types of debts can be covered, who can file which type of bankruptcy and what type of a property one can and cannot possess.
While filing for chapter13 bankruptcy, one must propose the repayment plan which includes the way to pay back debts in the next 3 to 5 years. The minimum level one will have to repay actually depends on the earning abilities; the debts and how much the unsecured creditors will have received if one would have filed for Chapter 7 bankruptcy. If the debtor has secured debts, Chapter 13 bankruptcy offers an option to give the missed payments in order to avoid problems like foreclosure or repossession.
Now every debtor can file for Chapter 7 bankruptcy. For instance, if the disposable income is enough to fund the Chapter 13 repayment process, after subtracting the allowed costs as well as monthly payments for specific debts, the debtor will not be permitted to use Chapter 7 bankruptcy. Under Chapter 7 bankruptcy, some of the property can be sold for paying debts. In return, almost all or most of the unsecured debts will get erased. One needs to keep property which is classified to be exempt under federal or state laws available to the debtor like car, household furniture. Various debtors filing the Chapter 7 bankruptcy are surprised to learn that all the property is totally exempt.
If the debtor owes money on secured debt, he or she has an option to allow the creditor to repossess the property, continuing the payments on property under contract or pay the creditor some lump sum money that is same to the present repayment value of that property.