There are different types of bankruptcy to apply for (actually, these types are also called chapters). Depending on what situation you are in, filing for bankruptcy will always provide you financial help.

Do not mistake this financial help for charity though, because the government will conduct a background investigation if you really are in need of this kind of assistance or not. Once the government found out that you are lying in any way to hide your assets, transfer your money to your friends or family, is still employed but declared yourself to be unemployed or intentionally concealed inheritance, business or any source of possible income, things will really go ugly and your chance of having the government on your side to help you will turn the other way around!

The merciful process of filing for bankruptcy is an angel for individuals or companies that no longer have the financial ability to pay for the bills they owe. In order for people in need of financial assistance to survive despite the fact of financial insolvency, the government will offer types of bankruptcy to opt for.  Whether it’s temporary or permanent, the government will always offer a hand to lure someone out of insolvency.

Here are the three (3) types of bankruptcy that is commonly applied for by firms and individuals:

Chapter 7 is the most commonly applied for and is also called “straight bankruptcy”. In this case, the debtor’s assets are sold to pay the creditors. In filing this type of bankruptcy, some of the debts will be eliminated so the original debt will no longer be paid in full as ordered by the government. Because of this scenario, a debtor who files for bankruptcy will face difficulties in applying for a new line of credit in a couple of years after filing.

Chapter 13 is debt restructuring exclusively for individuals. Here, debts are not paid off; instead a payment plan is being set to allow the debtor to pay his debt in the most convenient way as far as his budget is concerned. Payment plan can last from 3 years to five years of repayment provided that certain criteria are met.

Chapter 11 is almost similar to Chapter 13 only that this type of bankruptcy offers assistance to companies and corporations who are facing insolvency (not only limited to individuals). This type of bankruptcy can be filed whenever it is necessary provided that there should be monthly instalment payments as agreed with the creditor.

The first type is when someone is filing for Chapter 7 bankruptcy. In this bankruptcy, all non exempt assets held by the debtor are sold off and the money generated can be used to repay the debt as much as possible. The income generated after the filing of bankruptcy can be retained by the debtor and is not calculated to be under the bankruptcy. However, it is not possible to conduct business operations once a Chapter 7 bankruptcy has been filed. This is the kind of bankruptcy that people talk about when they are saying that they are going to file for bankruptcy.

The second type is when companies are filing for Chapter 11 bankruptcy which is often filed by businesses that are running in loss or are in trouble. It is a pretty complicated form of bankruptcy. In Chapter 11 bankruptcy, the debtor continues to run the business, maintain his assets and chalk a plan to reorganize and pay off the debts. It is mandatory for the debtor to come up with a plan within 120 days of filing the bankruptcy, beyond which the creditors have the liberty to make a plan of their own. The Chapter 13 bankruptcy type is similar to Chapter 11, except that it is for the individuals. Chapter 11 bankruptcy is also known as filing for corporate bankruptcy, which is often used interchangeably.

With the current crisis prevailing in the economy, many companies are filing for bankruptcy. Hence, it is not uncommon to see some big corporate names filing for bankruptcy online and openly admitting to having a financial crisis. Off late, bigwigs like General Motors and many American based financial institutions like Lehman Brothers have filed for bankruptcy due to a number of reasons. One cannot judge the situation of finances of a privately held company but it is entirely possible to determine the problems that are plaguing the publicly traded firms and hence, observe how the company gradually ended up in a bankrupt situation.

The last type of bankruptcy is the Chapter 12 bankruptcy where one is filing for personal bankruptcy, which is similar to chapter 5 in some ways. Chapter 12 is designed for farm owners. In this plan, the debtor continues working as usual, and even continues to own the assets that he always had. The only difference is that the debtor has to come up a plan to systematically repay the creditors.