Are you considering filing for bankruptcy?
Whether you’re planning to file as an individual or as a business owner, it can be comforting to know that you’re not alone. In the year ending June 2020, there were slightly over 682,000 bankruptcy filings. Although this is an 11 percent drop from the previous year, it’s clear there are still thousands of people and businesses that are in financial trouble.
Depending on your specific circumstances, successfully filing for bankruptcy can be a smart move. But before you reap the benefits, you need to know the different types of bankruptcies and be able to choose the right one for your situation.
Here’s a brief guide to the various bankruptcies.
Chapter 7 Bankruptcy
This is one of the most common types of bankruptcies. It’s ideal for people who’re filing for personal bankruptcy and businesses that are shutting down.
If you’re struggling with credit card debt and others types of unsecured loans, secured debt such as mortgages, and even child support and tax debt, this could be the ideal bankruptcy for you.
However, an applicant must pass a means test, which seeks to determine whether your regular income is not sufficient to settle any of your debts. This type allows for the liquidation of non-exempt assets, after which the proceeds are used to pay your unsecured creditors. In a chapter 7 bankruptcy, it’s possible for dischargeable debt, such as credit card debt, to be discharged.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is ideal for individuals who have a certain level of income but are unable to meet all their debt obligations. For example, if your income only allows you to pay your mortgage, car loan, and student loans but not the mortgage, you could explore this option.
You can find yourself in such a situation if your income has substantially reduced, perhaps due to a salary cut at work, leaving you no longer able to service your debt fully.
Chapter 13 gives you the chance to reorganize your finances. You’ll craft a new repayment plan, which must be approved by the bankruptcy court. In the plan, you must settle the debt in three to five years, depending on your income level.
Unlike Chapter 7 where your home could be foreclosed upon, 13 enables you to save your home and other property.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy, along with Chapter 7, is available to businesses. However, Chapter 7 is for companies that are shutting down, so their assets will be liquidated and the funds used to pay off creditors.
Chapter 11 is ideal for businesses that are looking to restructure and keep doing business as they pay off their debts. The business will propose a new payment plan, much like an individual does in Chapter 13.
Chapter 9, Chapter 12, and Chapter 15
While Chapter 7,11, and 13 are the most common, we also have Chapter 9, 12, and 13 for special cases. Chapter 9, for instance, is designed for entities such as cities, school districts, and counties. Chapter 12 is designed for farmers and owners of commercial fishing operations.
Chapter 15 is for individuals who are filing for bankruptcy under foreign laws but have assets and liabilities in the USA.
Understand the Different Types of Bankruptcies
If your personal or business’s finances are in a bad spot, you might be considering filing for bankruptcy. With this guide to the different types of bankruptcies, you now have a better understanding of these laws. However, it’s advisable to hire a bankruptcy attorney to help you.
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