by Destiny Song

Created on: June 05, 2010   Last Updated: June 07, 2010

There are three different types of bankruptcy; chapter 7, chapter 11 and chapter 13. Each has its own conditions and requirements needed to qualify, as well as different actions taken by the court after filing bankruptcy.

Chapter 7 is a complete liquidation of all assets, and a complete removal of all debt of an individual. All debt is removed and eliminated, but the individual’s property and possessions are all forfeit, and are in most circumstances liquidated to pay off as much as possible. To qualify for chapter 7, a debtor must qualify under the means test and completed a required pre-filing session with a credit counselor. To pass the means test and qualify for chapter 7 bankruptcy, either the debtor’s disposable monthly income must fall short of the state’s median, or his disposable income for 5 years (60 months) must not exceed the state’s median by $10000. His disposable income figure should also be no more than 25% of his total unsecured debt level. A debtor’s monthly disposable income is measured by subtracted allowable expenses from his monthly income.

Chapter 11 is another financial reorganization plan, applicable mostly to businesses. It grants the business financial favours, such as the ability to reject executory contract, as well as empowers the trustee to run the debtor’s business. Chapter 11 has no specific financial qualification requirement; however, the debtor’s bankruptcy plan must be approved by the bankruptcy court, and the debtor must abide to all financial reorganization imposed by the court, and also abide by the decision of the court to appoint a trustee, to run the debtor’s company,

Chapter 13 is a financial reorganization, an agreement and plan to pay off existing debt on a monthly basis. The individual or company retains all possessions, but also all debt. Any debtor whose unsecured debts are below $360475 and whose secured debts are below $1081400 can qualify for a chapter 13 bankruptcy. In addition, the debtor must not object to using his entire disposable income to pay off his existing debt for the next 3 to 5 years. He must also give the assurance that unsecured creditors would receive through the chapter 13 plan as much as they would if in a chapter 7 liquidation; this means that the debtor’s disposable income must be of sufficient amount to fund a chapter 13 plan.

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