When there are financial problems many people have no idea where to go. If you decide to file for bankruptcy then you will be in a better position if you know the facts. You should know and understand the mechanics of it, because they are confusing. Going through this process will help you make the best choice. One fact that you may not be aware of is: bankruptcy codes are created to protect people from financial stress. There are 6 types of bankruptcies that you can file if you are an American.

“Chapter 7” is the first type. It is also referred to as “Liquidation Bankruptcy”. This is the most popular option for many. In this type, the debtor’s assets are liquidated and the funds generated are used to pay creditors. It will take up to three months to be completed. The drawback is that your credit report will have this for a minimum of 10 years. Also, you cannot file for bankruptcy again in the next 8 years.

The next type is “Chapter 9” which is less known. It is specially designed for municipalities. The municipality may exist in a village, town, city, etc. In this type, the debt is restructured in such a way that the debtor can pay them.

The next popular type is “Chapter 11”. This type of bankruptcy permits the business to reorganise its debts without halting its operations. Then, a reorganisation plan is created by the debtor so that he is able to repay all his debts. The plan should be approved by all the creditors to become valid. This may go on for up to 5 years. But after 5 years the debtor will be clean and can begin a new life.

“Chapter 12”, under the bankruptcy laws, is specially designed to protect fisherman and farm owners. The debtor will be given all control on how he wants to repay the debt. He can also choose to pay only part of the total debt amount.

Then, there is the “Chapter 13” for those individuals who want to reorganize all their debts with a practical repayment plan. The debtor bears the entire weight of the debts, thus reflecting positively in his credit report. This reduces the number of years that your credit report will be affected to 7 years, from 10 years.

There is a new bankruptcy law, referred as “Chapter 15”. It helps in dealing with international debts.

Then there is the medical bankruptcy. Inability to pay your medical bills will lead to this. Big medical bills are one of the reasons for the financial problems of many people. With several charges starting with doctor’s fees to paying for drugs, medical attention is becoming more of a luxury. This is the reason why several people declare medical bankruptcy. There is one very effective way to stay out of this: get medical insurance for you and your family. Then your bills will be paid by the insurance company and you will not have to file for medical bankruptcy.

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