Facing financial hardship can be overwhelming, but understanding your options for relief can provide a path forward. As our friends at Resolve Law Group can explain, bankruptcy is a legal process designed to help individuals and businesses eliminate or repay their debts under the protection of the federal bankruptcy court. There are several types of bankruptcy, each with its own rules and procedures.
Chapter 7 Bankruptcy – Liquidation
Chapter 7 bankruptcy, often referred to as liquidation or straight bankruptcy, is the most common form. It’s designed for debtors in financial distress who do not have the ability to pay their existing debts. Debtors’ assets are sold, and the proceeds are used to pay off their debts. However, it’s important to note that certain types of assets, like a portion of equity in a home or car, are exempt from liquidation. Chapter 7 is a good option for those with limited income and few assets, seeking a fresh start.
Chapter 11 Bankruptcy – Business Reorganization
Primarily used by businesses, Chapter 11 bankruptcy allows corporations, partnerships, and sole proprietorships to reorganize and restructure their debts. This type of bankruptcy offers the debtor a fresh start, subject to the debtor’s fulfillment of obligations under the reorganization plan. A significant aspect of Chapter 11 is that the business can continue its operations. This process is more complex and typically more expensive, so it’s mostly used by businesses with substantial assets and operations.
Chapter 13 Bankruptcy – Individual Debt Adjustment
Chapter 13 bankruptcy is for individuals who have a regular income and wish to pay all or part of their debts in installments over a period of time. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. This option is particularly beneficial for those who have a steady income and are seeking to avoid foreclosure on their home or other assets. It’s also an avenue for individuals who exceed the income threshold for filing under Chapter 7.
Chapter 12 Bankruptcy – Family Farmers And Fishermen
Less commonly known, Chapter 12 bankruptcy is specifically designed for family farmers and fishermen. It allows financially distressed family farmers and fishermen to propose and carry out a plan to repay all or part of their debts. Under this chapter, individuals can restructure their finances to avoid liquidation or foreclosure. It’s very similar to Chapter 13 but provides more benefits to those in the farming and fishing industries.
Choosing The Right Type For Your Situation
Determining which type of bankruptcy to file can be complex. Each type has its eligibility requirements, benefits, and drawbacks. A qualified lawyer can help you understand which type of bankruptcy is most suited to your individual circumstances. They can provide guidance on the nuances of each type and help you navigate the filing process.
Get In Touch With A Lawyer Today
Bankruptcy can offer a lifeline for those drowning in debt, but the decision to file and choosing the right type should not be taken lightly. Each type of bankruptcy serves a different purpose and caters to different financial situations. Consulting with your knowledgeable bankruptcy lawyer can provide the expertise and guidance necessary to make an informed decision and start the journey toward financial stability.
