Types of bankruptcy

Posted By on Jan 15, 2016 |

Financial collapse of an individual, a small business or even a bigger corporation can be pretty traumatic experience with huge consequences. Fortunately, there are law and legal ways of damage control constructed to help debtors pull together and come back to the market.

 There are three main types of bankruptcy.

filing-bankruptcyThe first type, also known as liquidating bankruptcy, means that debtor will turn over some of his property to the bankruptcy trustee and this property will be sold. Money earned from that selling will be distributed to the creditors according to their legal claims. After that, debtor is no longer legally obligated to pay back his debts. The bright side of this type of bankruptcy is that most of debtor’s property can be exempted. In other words, the debtor gets to keep most of his assets in order to get a chance to recover. The creditors will get their money only if there is more property than can be exempted. Otherwise, creditors won’t be paid. Cases where all debtor’s assets are exempted are called “no-assets” cases. These laws do not refer to some cases, like debts for alimony and child support.

Chapter+11+Bankruptcy+LawThe second type of bankruptcy refers to so called “house keep and car keep bankruptcy”. Individuals who declare this type of bankruptcy are obligated to pay their debts back (or at least part of them) over next five years using their future income. Court settles and approves the repaying plan and the plan becomes official whether the creditors agree with it or not. If the debtor pays his debts back, he gets to keep all of his property. Otherwise, court will mandate for property to be sold. Law allows for this kind of procedure to be used only by individuals, not by corporations. In that case for example we have dallas Bankruptcy lawyer.

c6xqsbfg-1452574650Corporations, businesses or partnerships usually turn to third type of bankruptcy law. The idea of this type of bankruptcy law is to allow debtors to come up with a plan of reorganization. If permitted by court, corporations gets to keeps its business alive, apply a plan of reorganization to recover and increase its incomes and thereby pays the creditors back over some future time.

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