Six Types of Bankruptcy To Know About

Regal Cinema and the parent company Cineworld has recently been in talks to declare Chapter 11 bankruptcy. (Since Cineworld is based in the United Kingdom, there they would file for insolvency.) As this topic is fresh and recent in the news, I thought today I would briefly go over each type of bankruptcy.

Six Types of Bankruptcy:

  • Chapter 7 – liquidation
  • Chapter 9 – reserved for municipalities
  • Chapter 11 – reorganization
  • Chapter 12 – reserved for family farmers
  • Chapter 13 – repayment
  • Chapter 15 – international corporations

Let’s go over chapter 7, 13 and 11 as these are the most recognized by individuals.

Chapter 7 Bankruptcy

Chapter 7, liquidation, is where the courts and the trustee sell assets you have to pay unsecured debts. Unsecured debts are credit cards, personal loans, and other consumer loans. If your attorney structures it right, you would never have to lose your home, your work tools, or your vehicles in a Chapter 7 bankruptcy.

Chapter 13 Bankruptcy

This type is best used for individuals who want to restructure their debt. You must have a steady income and the maximum amount of time you get to pay the debts is generally 60 months. The payment of your debt, once again, is controlled by the courts and the trustee. Chapter 13 cannot be used for a business that files the form 1120 corporate tax return, 1120 S subchapter S corporation, or a form 1065 partnership tax return. If you file your business on a schedule C along with your form individual 1040, you can have some of that debt under chapter 13 as well.

Chapter 11 Bankruptcy

These are for corporations and partnerships Filing forms 1120, 1120 S and 1065. This is a reorganization of the corporation or business so it can stay in business. All their expenses and debt repayment must be handled by the trustee. It is a very complex form of bankruptcy but one that major corporations and manufacturers use consistently when their liabilities exceed their assets.

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