Bankruptcy is a process of the federal court that is aimed at helping both businesses and individuals in clearing up their debts and repaying under the protection given by the bankruptcy court. There are basically two types of bankruptcy : liquidation and reorganization.

Liquidation bankruptcy, under Chapter 7 of the bankruptcy code, occurs when you plead the court to have your debts discharged. Some of your properties will then be liquidated or sold by the bankruptcy court, returns of which shall be divided among your creditors. This type of bankruptcy proceeding lasts for four to six months which is quite fast and only one appearance at the courthouse is necessary.

Chapter 7 bankruptcy isn’t available to everyone, though. You may won’t benefit from it if in the past six to eight years, you have benefited from a bankruptcy discharge. Likewise, if after examination of your income, expenses, and overall debt, it was found out that the other type of bankruptcy proceeding is more appropriate, then you can’t insist on pursuing this kind.

The criteria has been affected by the new rules imposed on bankruptcy. If your income appears to be enough to support the other type of bankruptcy proceeding in spite of permitted expenses and payments for child support, tax debts, and others, liquidation bankruptcy is unfortunately not allowed.

Reorganization bankruptcy, usually under Chapter 13, happens when you file to a bankruptcy court a plan on how you intend to settle your debts. You indicate how much each of your creditors will get, depending on your finances. There will be a three- or five-year repayment plan, only after which can you be discharged of your debts, if any still remains.

An additional requirement for both types of bankruptcy is completion of credit counselling conducted by an agency recognized and approved by the United States Trustee’s office. This allows you to see several possibilities of informal repayment which you may have overlooked in the past. Even if such is obviously impossible, counselling remains a major requirement. The bankruptcy discharge will not be released unless this is fulfilled.

Bankruptcy may be beneficial for both the debtor and creditor. This is a way of recognizing one’s responsibilities and mistakes that led to the financial difficulty. The entire process takes into consideration both parties’ interests and leads to the development of an action plan that fulfils them. As such, this law shouldn’t be abused by any debtor thinking that a court is there to intervene.

Bankruptcy, although generally advantageous, must be considered as a last resort. You should, in all circumstances, work hard to be in full control of your finances to avoid being estranged in difficulties. Discipline is indeed a very crucial trait that must be maintained at all times.
Bankruptcy : Liquidation and Reorganization