“There are many types or forms bankruptcy can take. The US bankruptcy laws are designed to help individuals, businesses and even municipalities that are having severe debt problems that appear to be unsolvable within the current income or revenue levels. There are many reasons why this happens, but the reasons seem unimportant when buried under a mountain of debt. As many people discover when bills become backlogged, debt collection practices are harsh. The phone rings off the hook with collectors, and the late notices and penalty charges only seem to make the situation worse by the day. When you owe back taxes, the IRS is relentless when it comes to collecting the money.
The forms of bankruptcy are defined as chapters. The chapters were written to provide a specific form for filing when you are an individual, farmer, business, or municipality. Most people are aware of the availability of bankruptcy laws applicable to people and businesses, but even counties and cities can find themselves unable to pay their debt. Right now there is a current case in Alabama in which a county cannot pay its sewer bonds and is considering filing bankruptcy.
The first form bankruptcy takes for individuals is chapter 7. A chapter 7 is a liquidation bankruptcy in which your non-exempted assets are used to pay off as much debt as possible and the remaining balances are eliminated. A chapter 13 is called an individual debt adjustment form. In this case, an individual agrees to a court defined debt repayment plan.
Another form bankruptcy can take is chapter 11 which is a business reorganization plan. Under this chapter, the business asks for the debt to be adjusted in a way that makes it workable. The business can also ask for a total reorganization which is often what you read about large corporations doing in order to stay in business. Farm businesses, on the other hand, will file a chapter 12 when needing debt relief.
The other types of bankruptcies are chapter 9 for municipalities and chapter 15 for ancillary cases or cases which don’t fit the other defined chapters. There are even bankruptcy laws that address service people who are unable to pay their debts because they are overseas serving their country.
It is easy to see how complex the bankruptcy codes really is and it is a work in progress too. Every day new court cases refine the code based on actual experiences. A good bankruptcy attorney will always stay current on the laws so that you are able to get the best advice possible. The goal is to help you or your business start over again financially, but in a way that is the best fit for your situation.”