Are you struggling with heavy debt payments? Have you lost hope of ever paying off all those credit cards? Are you tired of the stress and anxiety that comes with the looming threat of a court summons? If so, bankruptcy may be the answer.
Don’t worry. Declaring bankruptcy doesn’t mean you’re a bad person. For many families and businesses, bankruptcy is a smart decision. It’s a last-resort measure that can help you get your life back on track.
Ready to learn more about the most common types of bankruptcy? Keep reading.
1. Chapter 7 Bankruptcy – The Fresh Start
Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” is one of the most common types used by individuals in financial distress. When individual files for Chapter 7 bankruptcy, their non-exempt assets are sold or liquidated to repay their debts.
However, the debtor gets to keep certain exempt assets that are considered essential for their fresh start. The process starts by filing a petition with the bankruptcy court, detailing the following:
- assets
- liabilities
- income
- expenses
Once the court approves the petition, an automatic stay is initiated, halting all creditor actions, including collection calls and lawsuits. A court-appointed trustee takes charge of the liquidation process and distributes the proceeds among the creditors.
2. Chapter 13 Bankruptcy – The Repayment Plan
Chapter 13 bankruptcy, known as “reorganization bankruptcy,” is designed for individuals with a stable income who want to repay their debts over time. Unlike Chapter 7, Chapter 13 does not involve asset liquidation.
Instead, debtors propose a repayment plan spanning three to five years, which outlines how they intend to repay their creditors. To qualify for Chapter 13 bankruptcy, individuals must have:
- steady income
- unsecured debts (card bills and medical expenses)
- must not exceed a certain limit
Once the court approves the repayment plan, debtors make regular payments to a bankruptcy trustee, who then distributes the funds to creditors as per the plan. At the end of the repayment period, any remaining eligible debts are discharged.
3. Chapter 11 Bankruptcy – The Business Solution
Chapter 11 bankruptcy, commonly known as “reorganization bankruptcy” for businesses, is a complex process mainly used by corporations, partnerships, and other business entities. It allows the business to continue its operations while restructuring its debts to become financially viable again.
Under Chapter 11, the business proposes a reorganization plan to the creditors, outlining how it intends to repay the debts and get back on track. The plan may involve the following:
- renegotiating contracts
- downsizing operations
- seeking new investment
Once the creditors and the court approve the plan, the business operates under the supervision of the bankruptcy court to ensure compliance. Remember, when navigating through the bankruptcy process, it is important to enlist the expertise of a seasoned bankruptcy attorney from nahrganglaw.com. Their knowledge and guidance on the different types of bankruptcy will ensure a favorable outcome and provide you with the necessary support every step of the way.
Understand the Different Types of Bankruptcy Today
Bankruptcy is a complicated process. Having the right information is key to understanding the various types of bankruptcy and determining which one is the best fit. Consider consulting a bankruptcy lawyer to determine which type of bankruptcy best suits your individual needs. Don’t wait; take control of your financial situation today!
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