Types of Bankruptcy and How They Can Hurt!

There are several types of bankruptcy that at one time were designed to help people out of a bad financial situation. Now, with so many people in serious debt filing for bankruptcy, the government has changed the laws directly affecting the debtor (the person in debt) and the creditor (the business or person to whom a debt is owed). Unfortunately, it adversely affects the debtor and helps the creditor.

There are five types of bankruptcies individuals and businesses can file to correct financial difficulties. They are called chapters which are derived from the various chapters of Title 11 - Bankruptcy. A Chapter 11 bankruptcy is for individuals or businesses wishing to reorganize their debts, but is very complex and not used as often. A Chapter 9 bankruptcy is known as an "adjustment of debts for municipality (a city or a town) which is much like a Chapter 11 in the process. A Chapter 12 bankruptcy is for family farmers only permitting farmers to pay their debts over time.

Of the five types of bankruptcy, 2 are commonly used by individuals to help reorganize their finances or liquidate their assets.

Chapter 7 Bankruptcies are known as "personal bankruptcy" and are the most common type, although businesses can also file this type.

Chapter 13 Bankruptcies are known as "reorganization bankruptcy" and are designed to allow businesses or individuals "reorganize" their debts. This is the better chapter to file if a person or business wants to keep a mortgaged house or car that is severely delinquent.

Depending on how much you are behind in payments to your creditors, your income, and financial situation determines which type of bankruptcy you can file. Below is a bankruptcy flow chart to help you determine who qualifies for the different types of bankruptcy. The chart explains which situation warrants each type of bankruptcy and what is required by each.

Clicking on the links above will go more into detail about the different types of bankruptcy that apply to individuals including their advantages and disadvantages.