Hi! This is Trevor and today we’re doing
a quick overview on Bankruptcy. Bankruptcy is a vehicle through the
court system that provides protection for debtors from their creditors. Quite often, people who have over-leveraged or for whatever reason are unable to
satisfy their debts, are forced to file bankruptcy in order to protect their
other assets or their personal situation from recourse from their various
creditors. The first type of bankruptcy we’re going to talk about is called Chapter 7 or Liquidation. Chapter 7 is a vehicle where the court takes a look at
the debtors non-exempt assets (exempt assets being like their personal home
and their car) but their non-exempt assets are sold and the proceeds of that sale are used to pay back the creditor. Typically, this gives the borrower a fresh start and is only allowed every 6 years for any individual. Most often, in a Chapter 7 liquidation, all of the debts are extinguished after the
bankruptcy process, even if they weren’t fully satisfied. The second type of
bankruptcy is called Chapter 11 – Reorganization and this is typically
used by businesses or corporations in order to restructure debts and
reorganize the company without having to liquidate and sell all the assets.
Often, Chapter 11 bankruptcies are common in downturns in the economy or where the
business was otherwise not managed in such a way that it could
satisfy all of its creditor obligations. Chapter 11 payment plans are ordered by
the court. The court decides who is going to get what proceeds and how often.
Sometimes it involves what’s called a “cramdown” where the court orders a
reduction of the debt liability for the creditor. And Chapter 11 is also limited
to filing only every six years. The final type of bankruptcy is called Chapter 13.
This is a personal reorganization for individuals or families (as opposed to
Chapter 11 which is a business reorganization.) Similar to Chapter 11, Chapter 13 is a reorganization of the debtors obligation
to its creditors and the court decides what sort of payment plans will be set
up and how much each creditor is going to receive from the debtor throughout
the term of the plan. Unlike Chapter 7 and Chapter 11,
Chapter 13 bankruptcies don’t have a waiting period for a debtor if they choose or
need to file bankruptcy a second time. This has been a quick overview on
Bankruptcies. Thanks for watching!