Types of Bankruptcy Filings
Since this is a mortgage financing book, the discussion focuses mostly on individual bankruptcy. But as a point of information, you should know there are four kinds of bankruptcy filings that can be mad in the United States:
Chapter 7: This category covers the majority of all consumers who file for bankruptcy. Under Chapter 7, the assigned trustee liquidates all assets declared nonexempt. A February 2005 report by
Chapter 13: The other form of bankruptcy available to individuals — and much more common since 2005 — Chapter 13 is available for someone with regular income whose amount owed doesn't exceed certain specific amounts. These debtors generally may retain their property as long as they stay current with a strict repayment schedule under current income levels that will last anywhere from six months to five years.
Chapter 11: If you see that a company has filed for bankruptcy, it's usually under Chapter 11. It allows a business to keep on running while it reorganizes its finances through a court-approved plan. Why should companies get such a big break? Because they employ people, and the government believes that it's a worthy goal to preserve jobs in a community.
Chapter 12: This is a particular form of bankruptcy designated for family farmers who derive regular income from farming.
With any luck, you'll never have a reason to become intimately involved with the bankruptcy process, but it's important to know what the various segments of the law cover.
The Federal Housing Administration (FHA) supports bankruptcy filers with loans that require only 3 percent down at a close-to-market interest rate as long as Chapter 7 filers wait two years after their debts are discharged and Chapter 13 filers wait at least a year. The bad news is that they have a loan limit that varies by the county you live in, and that may mean a much smaller property to get the rate.
