Bankruptcy and DebtAccording to the American Bankruptcy Institute’s assessment of data released by the Administrative Office of the U.S. Courts, there were 623,399 bankruptcy filings in the U.S. during the first three quarters of 2007 – a period that runs from January 1 to September 20. The first three quarters of 2007 alone represented a 40.16 percent increase over the first three quarters of 2006. For some, bankruptcy is a way to avoid paying certain creditors, but for most, bankruptcy is the only way out of an impossible financial situation. Bankruptcy is defined as the legal inability to pay debts or the state of having been legally declared bankrupt. Six types of bankruptcy exist including: chapter 7, chapter 9, chapter 11, chapter 12, chapter 13, and chapter 15. Chapter 7, chapter 11 and chapter 13 are the most common types of bankruptcy and chapter 9, chapter 12, and chapter 15 are much less common. Chapter 7, also referred to as “debt discharge,” “straight bankruptcy” or “liquidation bankruptcy,” is the most common type of bankruptcy in the U.S. today. Chapter 7 bankruptcy refers to a section of the United States Federal Bankruptcy Code that contains the bankruptcy law that allows individuals, couples, and businesses to cancel (discharge) their debts. In some cases, the bankruptcy court may have to liquidate some of the debtors’ property for the benefit of the creditors. Married couples and some businesses utilize chapter 7 most often. Chapter 9 is defined by the U.S. courts as the chapter of the United States Bankruptcy Code providing for reorganization of municipalities. These include: cities, towns, villages, counties, taxing districts, municipal utilities, and school districts. The purpose of chapter 9 is to provide a financially-distressed municipality protection from its creditors while it develops and negotiates a plan for adjusting its debts. Chapter 11 is a popular option for public companies. Chapter 11 is named for section 11 of the U.S. bankruptcy code under which a business is allowed to continue operating as it reorganizes and receives debt relief. In a bankruptcy of a publicly owned enterprise, the ownership of the firm’s assets is transferred from its stockholders to its bondholders. Chapter 12, named for section 12 of the U.S. bankruptcy code, sets rules for the bankruptcy of family farms. The rules are similar to those listed under chapter 13. Under chapter 13, also called “wage-earners bankruptcy,” a debtor can retain assets while paying off all or part of his or her debts under a structured repayment plan. The repayment plan can last anywhere from three to five years. Chapter 15 is a new chapter that has been added to the United States Bankruptcy Code. It replaces Bankruptcy Code Section 304 and it was added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Chapter 15 provides effective solutions for handling insolvency cases involving debtors, assets, and claimants of more than one country. While all forms of bankruptcy offer protection from creditors and relief from debt, each type of bankruptcy is not without consequence. Chapters 7, 11, and 12 will remain on your credit report for 10 years and a chapter 13 remains on your credit report for seven years. *The costs for filing a bankruptcy claim are as follows:
*United States Bankruptcy Courts (online resource) http://www.uscourts.gov/bankruptcycourts.html (3/17/08, 2/7/08) |
