The Most Common Types Of Bankruptcy

By Author: Jamie Hanson
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Bankruptcy has been in the news a lot lately, ranging from your neighbor and his foreclosed home to the very largest US auto manufacturers. Bankruptcy is not a one-size fits all proposition, but it will appear on your credit report.

Here's a look at the most common types of bankruptcy:

Chapter 7 Bankruptcy: Chapter of the Bankruptcy Code that provides for court administered liquidation of the assets of a financially troubled individual or business. This is the most familiar type of bankruptcy, in which many or all of your debts are wiped out completely in exchange for giving up your nonexempt property. Chapter 7 bankruptcies takes from three to six months, costs about $200, and commonly requires only one trip to the courthouse.

Chapter 11 Bankruptcy: Chapter of the Bankruptcy Code that is usually used for the reorganization of a financially troubled business or consumers with an extraordinary amount of debt. Used as an alternative to liquidation under Chapter 7. The U.S. Supreme Court has held that an individual may also use Chapter 11.

Chapter 12 Bankruptcy: Chapter of the Bankruptcy Code adopted ...
... to address the financial crisis of the nation's farming community. Cases under this chapter are administered like Chapter 11 cases, but with special protections to meet the special conditions of family farm operations.

Chapter 13 Bankruptcy: The reorganization bankruptcy for consumers, in which you partially or fully repay your debts. Plan payments usually come from the debtor's future income and are paid to creditors through the court system and the bankruptcy trustee. In Chapter 13 bankruptcy, you keep your property and use your income to pay all or a portion of the debts over three to five years. The minimum amount you must pay is roughly equal to the value of your nonexempt property. In addition, you must pledge your disposable net income - after subtracting reasonable expenses - for the period during which you are making payments. At the end of the three-to five-year period, the balance of what you owe on most debts is erased.

But that's not the end of the story. Though a bankruptcy can remain on your credit report for seven years, it won't ruin your credit score for life. If you keep all of your other credit obligations in good standing, your FICO credit score can begin to rebound in as little as two years. The important thing to keep in mind is that a bankruptcy is a single negative item on your credit report. If you keep it isolated, it will be much less damaging to your FICO credit score than if you had a bankruptcy in addition to defaulting.

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