Individuals legally announce that they are unable to pay their debts when they file for bankruptcy. Learn which form of bankruptcy is the best choice for you if you are trying to consolidate your debts, and know what kind of legal support you may need.
For customers and companies, there are various types or ‘chapters’ of bankruptcy. Usually, depending on the extent of your debts, you can only apply for one or two distinct chapters.
Chapter 7: No Asset Bankruptcy
Chapter 7 bankruptcy allows you to discharge virtually all of your debt or to cancel it. However, you would have to sell some valuable properties, such as a house or car, in return.
You will be entitled to file an exception for products worth under a few thousand dollars if there are any assets that you want to keep. A bankruptcy attorney would be able to clarify the rules for exemption from your state.
Chapter 13: Reorganization Bankruptcy
The bankruptcy of Chapter 13 allows you to retain your house but needs you to establish a strategy to recover any or all your debt. For this reason, to file for chapter 13 successfully, you need a constant earning.
Many persons who apply for chapter 13 are homeowners who are working and unable to pay their mortgage debt. Filing for chapter 13 helps them escape eviction and slowly repay the debt for years.
Chapter 11: Business Bankruptcy
For LLCs, partnerships, or businesses, Chapter 11 bankruptcy is always an option. To qualify for chapter 13 bankruptcy, these corporations owe too much money.
The filer sets up a repayment plan in chapter 11 and can continue to conduct business. It may take a long time to resolve this form of bankruptcy, and it is always costly. This is why small business owners could instead select chapter 7 or 13.
Private vs. Corporate Bankruptcy
Companies can file for chapter 7 bankruptcy. They typically do not because the company will need to be liquidated. Similarly, people can file for chapter 11, but they sometimes do not want to do so since the process is so complicated.
The most significant difference between personal and corporate bankruptcy is that, while companies do not, individuals must pass a means test. This test examines whether a person qualifies for bankruptcy. There is no need for companies that apply for chapter 11 to go through a means test.
Debt Forms in a Bankruptcy
You must report all of the debt you plan to discharge when filing for bankruptcy. Included in these debts are
- Bills for medical
- Loans on mortgages
- Loans for Cars
- Debt by credit card
- In-person loans
There are still, however, some kinds of debt that you will need to repay.
- Debt on Income Tax
- Loans from students
- Aid for children
- Penalties in connection with a felony conviction
What Should Be Done By a Bankruptcy Lawyer
Hiring a bankruptcy attorney is necessary if you have substantial assets or if you own a company. An attorney who knows all the bankruptcy laws will assist you with as little financial loss as possible to get through the process. Before you apply, it is always prudent to have an attorney review your records if you want to independently handle your case.
Many who declare bankruptcy on their own run the risk of their debts or properties not being reported correctly. If a case is wrongly filed, the bankruptcy court will dismiss it, leaving the filer where it began. However, a skilled bankruptcy attorney will be able to help you account for all of your debt, educate you on the best ways to retain the valuable property or assist you in structuring a realistic repayment plan.
While bankruptcy can be stressful, in the end, having a legal advocate to help you effectively will make the process much smoother than if you were to go alone.