The Different Types of Bankruptcy
You’ve most likely heard of bankruptcy, but did you know there are multiple types (chapters)? Most bankruptcy cases are filed under Chapter 7, Chapter 11, or Chapter 13. If you’re thinking of filing bankruptcy, it’s important to understand the various chapters and how they work. Here’s a quick guide to help you navigate the sometimes-complicated world of bankruptcy filing.
Chapter 7 Bankruptcy Filing
Chapter 7 bankruptcy can help you discharge (or eliminate) some of the debts you owe. You must petition for Chapter 7 bankruptcy and submit a variety of documents (including current income and expenditure data, unexpired leases and other documentation) to find out if you’re eligible. A good Chapter 7 bankruptcy lawyer can help you determine your eligibility before you submit your petition.
Chapter 11 Bankruptcy Filing
Chapter 11 bankruptcy is intended for businesses and gives them an opportunity to keep their doors open while repaying creditors by restructuring assets and debts. Typically, only large companies file for Chapter 11 bankruptcy, although startups may qualify in rare cases. Throughout bankruptcy proceedings, the business in question continues to operate, although most big decisions have to be made with court permission during this time.
Chapter 13 Bankruptcy Filing
If you’re an individual looking for an alternative to Chapter 7 bankruptcy, Chapter 13 may be the solution you need. This type of bankruptcy makes up a large portion of non-business bankruptcy filings. It’s often selected by those who need to declare bankruptcy but whose income is too high to qualify for Chapter 7. Under this chapter of bankruptcy, you must create a three-to five-year creditor repayment plan.
When is the Right Time to File for Bankruptcy?
Making the decision to file for bankruptcy can be difficult, but it may be necessary for your financial well-being. If you have analyzed your financial situation and know you can’t pay off all your debts within five years, bankruptcy may be something to consider. Bankruptcy will remain on your credit profile for years, but once your debts are dismissed, you’ll experience significant financial and emotional relief.