Most Common Form/Types of Bankruptcy
Overview
The main purpose of bankruptcy is to give an honest debtor a fresh start in life by relieving them of their debts, subject to certain terms and conditions. If a debtor becomes insolvent, they might consider filing for bankruptcy as a debt solution.
Bankruptcy should be considered if creditors have either threatened or already started to institute legal proceedings against you in order to:
1) Attach your assets to have it sold on a sheriff’s auction.
2) Attach a portion of your salary in terms of a court order, subject to legal fees, collection commissions and interest.
3) Attach debts due to you or your business (accounts still payable by your clients) in terms of a court order, subject to legal fees, collection commission and interest.
Debtors can have secured debt. Here creditors have the legal right to something of yours if you fail to make the proper payments. Secured creditors are always paid first in a bankruptcy settlement. Secured debt can’t ever be fully discharged. The debtor can either make the payments and keep the item, or stop paying on the debt and have the item repossessed.
For example your mortgage, is a secured debt. By loaning you the money to pay for your house, the bank gets a lien on it. If you stop making mortgage payments, the bank can foreclose and take possession of your house.
In business, secured debt can get very complicated. Various business loans may give creditors a lien against intangible aspects of the business, such as patents, trademarks or intellectual property. The creditor can still repossess property that has a lien against it, even if some portion of the debt has been discharged.
Ever heard someone say the company was liquidated? Well Liquidation of the business is one the most common types of corporate bankruptcy. And it may be the best choice when the business has no future. It’s usually referred to as liquidation. It’s usually used when the debts of the business are so overwhelming that restructuring them is not feasible.
Another common type of bankruptcy is Personal bankruptcy. It’s a reorganisation bankruptcy typically reserved for consumers, though it can be used for sole proprietorships. With this bankruptcy you file a repayment plan with the bankruptcy court detailing how you’re going to repay your debts. The amount you’ve to repay depends on how much you earn, how much you owe, and how much property you own.
