Bankruptcy
Bankruptcy law, a federal statute, is intended to assist debt-laden businesses and individuals recover from their burdens and get a fresh start. To declare bankruptcy, you have to file certain papers and documents before a bankruptcy court. After you have filed bankruptcy, there is an automatic stay, that is, your creditors cannot collect the full amount that you owe them. This is not an absolute rule, however. Some creditors may still be able to collect your debts, provided that they secure the approval of the bankruptcy court.
The U.S. Bankruptcy Code describes four basic types of bankruptcy. In common usage, each type is referred to by the section number in the Code where its rules and requirements are specified. If you think that you have no other legal recourse but to file bankruptcy, you must consult with an attorney to ask for more detailed explanations and to help you select the bankruptcy classification which best suits your requirements.
Chapter 7 bankruptcy is a liquidation of debts and is available to a consumer, partnership, corporation and any other type of business entity. By filing Chapter 7, you will be able to wipe out all your debts except for some excluded debts. The downside to this type of bankruptcy is that you will be exposed to the possibility of losing your property.
Chapter 11 bankruptcy is the reorganization, which is often resorted to by corporations and partnerships, and sometimes used by consumers who are not qualified under Chapter 13.
Chapter 12 bankruptcy is also reorganization but it is applicable to family farmers and fishermen. The process of filing Chapter 12 is similar to Chapter 13. It provides a means for keeping the farm while the outstanding debt is gradually paid over time.
Chapter 13 bankruptcy is a reorganization of debts with the supervision of the court and is only available to consumers and sole proprietorships. Chapter 13 gives you the means to reduce the amount of your payments on outstanding debts. You are given some protection from creditors as you make payments, and you gain the advantage of keeping property that you need but may not be able to replace because you can no longer afford it.