When faced with mounting debts and no way to pay them off, many individuals seriously consider bankruptcy as a way out. Bankruptcy can be a means of regaining financial stability when other methods have failed. Filing for bankruptcy is an opportunity for a debtor to emerge out of a financial crisis and start afresh.
Bankruptcy provides financial relief to individuals, businesses or companies that are unable to pay outstanding debts. A bankruptcy proceeding can either be entered into voluntarily by a debtor or initiated by creditors. After a bankruptcy proceeding is filed, creditors, for the most part, may not seek to collect their debts outside of the proceeding. Regardless of the type of bankruptcy filed, a person should speak with an attorney. All forms of bankruptcy are a costly means of obtaining debt relief. Both individuals and businesses suffer a reduction of their credit score after a bankruptcy. Individual bankruptcy remains on a credit report for 10 years, which can make getting approved for new cars or homes difficult.
There are both advantages and disadvantages to bankruptcy, which should be considered before making a final decision. Bankruptcy for the individual or married couple comes in three forms: Chapter 7, Chapter 11 and Chapter 13. These are the most common types of bankruptcy in the U.S. A Chapter 7 bankruptcy is the most common form filed by individuals; Chapter 11 bankruptcy allows companies to continue to function while they follow debt repayment plans; and individuals or married couples may also file Chapter 13 bankruptcy if they hope to retain their homes and other assets.
What Is A Chapter 7 Bankruptcy?
A Chapter 7 bankruptcy is also known as liquidation (converting assets into money) or a straight bankruptcy. A Chapter 7 bankruptcy is the most common form of bankruptcy filing. This is one of the faster ways of starting afresh. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors.
A Chapter 7 bankruptcy tends to be used by individuals and businesses that want a total fresh start. When a Chapter 7 bankruptcy petition is discharged, the debts which were included in the petition are permanently erased. The creditors are no longer allowed to pursue collection attempts for those debts. One must generally be able to prove that one's income is insufficient to meet debts. For the individual, Chapter 7 bankruptcy means that the courts declare the person unable to pay debts incurred, and almost all debts are then void. Certain federal debts, like student loans, are unaffected by declaring bankruptcy.
Individuals who file Chapter 7 bankruptcy do so because they have very little left to lose. A person filing Chapter 7 does risk losing the most assets, but typically will not lose a primary vehicle or residence under this form of bankruptcy, unless the person has an auto loan or home loan and cannot make the payments. Once a judge approves the bankruptcy filing, virtually all debts, like those owed doctors or hospitals, are cleared.
However, there are disadvantages of Chapter 7 bankruptcy. Chapter 7 bankruptcy requires the liquidation of all eligible assets of the petitioner to use toward satisfying his or her debts. While the law does allow for some personal effects to remain exempt from liquidation, petitioners can and often do lose family heirlooms and even homes during the resolution of a Chapter 7 bankruptcy petition. Chapter 7 bankruptcy is a very serious adverse item on a credit report.
What Is A Chapter 11 Bankruptcy?
In an attempt to fend off creditors, companies both large and small use Chapter 11 bankruptcy. In Chapter 11 reorganization, the company is allowed to continue business operations while it works with its creditors and the courts. The personal assets of officers of corporations which file Chapter 11 bankruptcy are protected from creditors. Once a satisfactory agreement has been reached, a Chapter 11 petition is considered to be discharged.
Remember, a Chapter 11 bankruptcy petition can be a long and tedious process, and a discharge is not granted until its conclusion. If attempts to reorganize fail, the assets of the business that are not exempt are liquidated and the business ceases to exist.
What Is A Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy is often filed by many individuals rather than Chapter 7 in the hopes of retaining a family home, car and other possessions. Chapter 13 reduces the total debt obligation of the petitioner while allowing him or her to keep the bulk of his or her personal possessions.
Individuals who own a great deal of property or assets but find that their income cannot cover the high payments on debts owed file Chapter 13 bankruptcy. In this form, the debt is restructured and in some cases reduced so that people may retain their assets but have reasonable payments, which they can make to debtors. Generally, the court-ordered payments must be made on time and regularly in order to avoid having assets seized.
A Chapter 13 bankruptcy requires the individual to live under court-regulated financial guidelines throughout the entire period of repayment. The individual is not allowed to take on any new debt during the period of repayment.
There has been much doom and gloom written about bankruptcy laws and how much more difficult it's going to be to file for bankruptcy. It's true that there are more hoops to jump through under the new laws. However, if you are ready to find out if bankruptcy can help improve your financial situation, the best place to start is to contact an attorney.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.