Both businesses and individuals can file for bankruptcy. And, aside from popular belief, bankruptcy doesn’t have to mean the end. In fact, bankruptcy can be positive as it can mean a fresh start for businesses and professionals. But bankruptcy isn’t right for everyone. Check out this quick guide to determine if bankruptcy is right for you.
Bankruptcy may be the right option for you if you can no longer keep up with your debts or you are on the verge of losing your home or other property. Bankruptcy helps the honest but unfortunate debtor get a fresh start by forgiving some or most of their debts after completion of a repayment plan or liquidation.
Bankruptcy Law Benefits: Explained
Bankruptcy law is federal law. However, some state laws also play a role in bankruptcy cases. For example, some assets are exempt from liquidation according to state law, like a portion of your car or home. Bankruptcy law often looks to state law to determine whether property is exempt.
What is Automatic Stay?
One of the biggest advantages of filing for bankruptcy is the automatic stay. The automatic stay will halt all collection efforts against you. That means that creditors must stop the harassing phone calls and repossession efforts immediately when you file.
Is There More than One Type of Bankruptcy?
The Bankruptcy Code provides several types of bankruptcy options. Individuals will usually file either a Chapter 7 or Chapter 13 bankruptcy case while businesses can file a Chapter 7 or Chapter 11. Family farmers and fisherman will typically file a Chapter 12 case.
Chapter 7 cases involve a complete liquidation. Unlike a Chapter 13 or Chapter 11, there is no repayment plan involved. The Chapter 7 Trustee will gather and value all of your assets and sell the ones that are not exempt. For a business in Chapter 7, the business will cease to exist after the liquidation is complete.
Debtors sometimes prefer this type of case because it is much faster. You can keep your income after you file your bankruptcy petition, unlike a Chapter 13 case. However, only certain debtors will qualify for a Chapter 7 bankruptcy.
In a Chapter 13 bankruptcy, you gather all of your debts and income to determine how much you will pay each month. Then, you will develop a plan based on these amounts and work on repaying your creditors for a period of up to five years. The time that you must spend in the plan will depend on your amount of debt and income.
Most individual debtors will end up in a Chapter 13 case. Some plans allow for debt forgiveness while others simply restructure the payments to something that you and your family can afford. It is very similar to a large consolidation loan.
Most businesses will file bankruptcy under Chapter 11. However, some individuals who have high income or assets may also qualify to file under Chapter 11. Chapter 11s are much more complicated than smaller individual bankruptcy cases.
This chapter is commonly referred to as a reorganization. Unlike Chapter 7, a business that goes through Chapter 11 bankruptcy will often still continue to do business after going through their restructuring plan.
If you are considering filing for bankruptcy, speak with an experienced bankruptcy attorney to discuss your options. He or she can help you decide if bankruptcy is right for you.