• About
  • Mortgage Basics
  • $40K Challenge
  • Aunt Doris
  • Grandfather Says
  • Privacy
  • Archives
  • 100 Words

Len Penzo dot Com

The offbeat personal finance blog for responsible people.

How to Know Which Bankruptcy Chapter Is Best for You

By Sabado Domingo

Nobody ever truly starts out dreaming of going bankrupt one day — but sometimes it’s a necessary evil. If the day finally comes when you decide to file for bankruptcy, the next decision is to understand the type of bankruptcy that best suits your present circumstances.

There are basically four types of bankruptcy forms available: Chapter 7, Chapter 11, Chapter 12 and Chapter 13.

So, the question is: which bankruptcy option is the best choice for you?

Chapter 7

This is the most common form of bankruptcy. It’s typically for personal bankruptcy, but it can also be filed by certain businesses, depending on their circumstances. Under this form of bankruptcy, most of the unsecured debts get eliminated or discharged, which means the creditors cant attempt to collect any money from you; however, not everyone gets to file for this form as not everyone is qualified for Chapter 7. To qualify for this bankruptcy option, your income over the previous six months prior to filing must be equal to, or lesser than, the stipulated average income in the state you are residing in for families of your size. If this is not the case, then you’ll be asked to take up a means test to determine whether or not you have enough income to file for Chapter 13.

Chapter 11

This is a rather intricate option. As a result, it’s mostly used by those businesses that plan to reorganize. However, in rare cases individuals may take this route. As it is a complex bankruptcy form, it’s strongly advised to have a Chapter 11 attorney by your side to handle the intricacies.

Chapter 12

This form of bankruptcy is filed by “family farmers” and “family fishermen” only. It is similar to a Chapter 13 filing, except that it gives farmers and fishermen the ability to clear their debts over a period of time.

Chapter 13

This form of bankruptcy is also called reorganization bankruptcy. The biggest advantage of this option is that it permits you to retain some of your properties such as your house or your car that you might otherwise be likely to lose if you file for Chapter 7. If you opt for Chapter 13, you are asked to pay all your creditors a certain percentage of the total debt over a period of five years. The debts on your part should not exceed a certain maximum limit, if you want to go for Chapter 13.

You’ll also have to file what is called as repayment plan, which is submitted for the approval of bankruptcy court. One of the trustees of the court will look into repayments. Those who fail to maintain their schedule can still convert into a Chapter 7 bankruptcy.

Before You File for Bankruptcy

Of course, before deciding to file for any of these bankruptcy forms, it is always advisable to consult an experienced bankruptcy attorney, who can thoroughly scrutinize your case.

Yes, the decision to file for bankruptcy is never easy — but sometimes it is the only realistic option when finances sour.

Photo Credit: Ralph Daily

August 22, 2017

Comments

  1. 1

    J. B. says

    We were able to file chapter 7 and still keep our house and car, (along with our student loans, those don’t go away with bankruptcy).

Trackbacks

  1. A Primer on Bankruptcy Options and Potential Tax Liabilities – Len Penzo dot Com says:
    June 25, 2018 at 4:26 pm

    […] you are struggling financially and are curious about the bankruptcy option. You have heard the rumors about those who have filed and prospered; you’ve heard the tales […]

The Question of the Week:

If the government eliminates cash, to what degree will that impact your freedom?

View Results

Loading ... Loading ...

Recent Posts

  • Black Coffee: Par for the Course
  • The Continuing Chronicles of Elaine, Part 7
  • Three Reasons Why Credit Unions Are a Great Choice for a Car Loan
  • Bad Habits That Make You a Target of Credit Card Fraud
  • Lessons In Tax Law: Why You Should Never Try To Bribe The IRS
  • Why Paying Off the Mortgage Early May Be a Big Mistake
  • Black Coffee: Welcome to the Fun House
  • A Georgia Teacher Shows Why It Always Pays to Read the Fine Print
  • Why Extended Warranties Sometimes Do Make Sense
  • 10 Ways to Get the Most from Your Next Business Conference

Disclaimer

This site is for informational and entertainment purposes only, and the content herein should not be mistaken for professional financial advice. In fact, making investment decisions based on information published here, or any other website for that matter, is more than unwise; it is folly. This website accepts advertising in the form of monetary and other compensation; as such, topics of discussion are occasionally influenced by these advertisers. Sometimes, an article may also include affiliate links, meaning, at no additional cost to you, this blog earns a commission if you click through and make a purchase (for example, as an Amazon Associate I earn from qualifying purchases). Remember, you and you alone are responsible for the decisions you make in life, so please contact an independent financial professional for advice regarding your unique personal situation.

Sign up for the weekly Len Penzo dot Com newsletter
Len Penzo dot Com Delivered Weekly
Join more than 40,000 readers and fans who enjoy personal finance and macroeconomics with an offbeat twist!
Invalid email address
Thanks for subscribing!

Popular Now:

  1. 1. Scientists Say This Clever Trick Can Help You Break Your Overspending Habit
  2. 2. 4 Online Shopping Mistakes You’re Making and How to Avoid Them
  3. 3. When Is the Right Time to Use Your Wealth Insurance (Gold & Silver)?
  4. 4. Dear Friend: Here Are 41 Reasons Why I’m Not Lending You the Money
  5. 5. Home Repair Scams: Here Are the 9 Biggest
  6. 6. Trying to Save Money on Gas? Here’s Proof That Driving Out of Your Way Rarely Helps
  7. 7. How I Fought My Parking Ticket and Beat City Hall
  8. 8. Are You Frugal or Cheap? Here’s How to Know the Difference
  9. 9. Historical Gold & Silver Benchmarks for Wages and Commodities
  10. 10. 4 Good Reasons Why Some Quarters Are Painted Red

All-Time Most Popular:

  1. 1. 19 Things Your Millionaire Neighbor Won’t Tell You
  2. 2. Dear Friend: Here Are 41 Reasons Why I’m NOT Lending the Money
  3. 3. Why Your Expensive Luxury Car Doesn’t Impress Smart People
  4. 4. If You Can’t Live on $40,000 Annually It’s Your Own Fault
  5. 5. 21 Reasons Why Corner Lots Are for Suckers
  6. 6. 4 Smart Reasons Why College Isn’t for Everyone
  7. 7. 18 Fast Facts About Social Security Numbers
  8. 8. My Ketchup Taste Test: Upset! Guess Which Brand Topped Heinz
  9. 9. Why I Prefer a Spreadsheet to Track Expenses and Manage My Finances
  10. 10. Here’s a Simple Trick for Getting Credit Card Interest Charges Waived

Copyright © 2023 Len Penzo dot Com · All Rights Reserved · Designed by Nuts and Bolts Media

© Len Penzo dot Com 2008–2023