Bankruptcy is a federal court process designed to help individuals, married couples, and businesses to eliminate or restructure their debts, under the protection of the bankruptcy court, when they have financial difficulties and are unable to pay their creditors.
Once considered a shameful last resort, bankruptcy in the United States is emerging as an acceptable method of resolving serious financial troubles.
The most common types of bankruptcy for individuals are Chapter 7 & 13. As much as 65% of all U.S. consumer bankruptcy filings are Chapter 7 cases. Corporations & other businesses file under Chapters 7 or 11.
Chapter 7 is called liquidation. It is the most common type of bankruptcy proceeding. It is the simplest and quickest form of bankruptcy available. It involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it & distributes the proceeds to the creditors. Not dischargeable in bankruptcy are alimony & child support & taxes.
Chapter 11 bankruptcy allows a business to reorganize and refinance to be able to prevent final insolvency. It used primarily by business debtors, but sometimes by individuals with substantial debts and assets. It is most commonly called a corporate bankruptcy, it is a form of corporate financial reorganization which typically allows companies to continue to function while they follow debt repayment plans. The final plan often requires creditors to take only a small percentage of the debts owed them or to take payment over a long period of time.
Chapter 13 is similar to Chapter 11, but is for individuals to work out payment schedules. It enables individuals with regular income to develop a plan to repay all or part of their debts; also known as Wage Earner Bankruptcy.
There are a number of pros and cons of declaring bankruptcy. If you are thinking about filing for bankruptcy, seek out the advice of an experienced New York Bankruptcy lawyer who can help you make a better, more informed decision.