Bankruptcy

A bankruptcy discharge is a court order issued at the end of a Chapter 7 or Chapter 13 bankruptcy proceeding. The order relieves the debtor from any obligation to repay the debts that have been discharged. Debts that are likely to be discharged in a bankruptcy proceeding include credit card debts, medical bills, lawsuit judgments, personal loans, obligations under a lease or other contract, and other unsecured debts.

When an individual or company files for bankruptcy, they are required to settle preferred debts before other types of debts. The funds collected after liquidating assets are then used to pay off preferred debts. Any amount remaining (if any) can then go to settle other debts. There are several types of preferred debt, including taxes, preferred stock, employee wages, and home mortgages.

Senior debt is money borrowed by a company that must be repaid first during bankruptcy. Junior debtholders and shareholders also have a claim on the company’s assets and cash flow, but these claims are lower priority if the company defaults on its debt. Senior debt is often held by banks and secured by collateral.

Voluntary bankruptcy is a legal filing wherein a person initiates bankruptcy when they can’t pay their outstanding debt. If a person or a business has exhausted all their options and still can’t repay what they owe, they can file for voluntary bankruptcy.

Nondischargeable debts are those debts that can't be forgiven in a bankruptcy. If your debts have overtaken you, bankruptcy is often the only way to start over and be relieved of the liabilities that have piled up. However, the U.S. Courts consider several types of debt nondischargeable. In other words, you'll still owe those creditors even if your bankruptcy is discharged.

Involuntary bankruptcies are sought by creditors unwilling to wait for borrowers to make the decision to file for bankruptcy on their own. They may be faced with a borrower who is squandering assets or isn’t paying their debts as they come due, but has assets that could be used to satisfy those debts.

Chapter 9 bankruptcy, also known as municipal bankruptcy, allows a municipality, county, or other taxing authority to seek protection from creditors in order to reorganize or adjust its debt obligations. Although rare, chapter 9 cases can involve significant amounts of debt.

Chapter 11 bankruptcy allows businesses to seek debt relief and protection from their creditors by reorganizing the business and its debts. It is the most complex, expensive type of bankruptcy in the U.S. Bankruptcy Code.

Chapter 12 bankruptcy provides a way for family farmers or family fishermen under financial distress to pay back their debts. If approved, it prevents creditors and collectors from taking action against the debtor while they pay back their debts. Because of the seasonal nature of farming and fishing operations, Chapter 12 offers more flexible payment arrangements than a standard Chapter 13 Arrangement.