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Bankruptcy Basics - Chapters 7, 11, and 13

03rd November 2010
By cmj in Bankruptcy Law
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The number of cases of bankruptcy has increased tremendously due to recession and loss of jobs. Under the current Federal Bankruptcy Law, there are several chapters under which you can file bankruptcy.

Chapter 7: Among the bankruptcy chapters, chapter 7 bankruptcy is the most common and allows the debtor to solve their financial crisis by selling assets and converting them into liquid money. It basically involves the liquidation of the debtor's non-exempt assets once they are turned over to a trustee and its subsequent distribution among the holders of claims (creditors).

Since not all creditors will receive money from the proceeds so many of those debts would be waived or discharged. However taxes, child support, alimony and few kinds of student loans cannot be discharged under the present laws. When Chapter 7 bankruptcy is filed, it cannot be filed again for the next 7 years.

Chapter 11: Chapter 11 deals mainly with corporate bankruptcy. One of the principle features of it being that it allows businesses to reorganize themselves and restructure their debt issues. It also allows them to get themselves out from certain restrictive contracts and agreements.


One of the main advantages of filing bankruptcy chapter 11 is that the stockholder's personal assets are not at risk; only the value of investment in the company stocks is lost.

Chapter 13: Bankruptcy Chapter 13 is similar to Chapter 11. The main difference being that under chapter 13 there is a limit regarding the amount of money owed to the creditors. It is primarily meant for individuals who have a regular source of income where they are allowed to follow a debt repayment plan.
It is also known as Wage earner's bankruptcy.

The US Bankruptcy Code gives the debtor a ceiling of 5 years, which means that the creditors need to be paid back within that time-period.

Find this useful and would like more information on Bankruptcy or Facing Credit problems and in the Sacramento CA area visit: Sacramento Bankruptcy Attorneys
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