Bankruptcy is usually considered as the last option for businesses and people in debt. However, filing for bankruptcy is more common than you think it is. Even companies like General Motors and United Airlines file for bankruptcy only to continue their business normally. People also emerge as one piece after filing for bankruptcy.
Typically, a person files for bankruptcy when there is no way they can fulfil their debt obligations. It is assumed that only the people who are left with no money and have taken on a lot of debt from credit cards fall into bankruptcy. However, companies and people file for bankruptcy after they face a major monetary blow, which can be unexpected illness or a lawsuit debacle.
Another popular belief is that bankruptcy clears all the debt obligations, which is again not true. You will have to pay and how you will be paying depends on the type of bankruptcy that you file i.e. Chapter 7, Chapter 11, or Chapter 13. These three are mostly known by all, however, Chapter 12 bankruptcy is also there, specifically for fishermen and farmers.
- Chapter 7 – In this case, you may be required to liquidate some assets like a second home or car to clear off some of your debt. Typically, most of the assets are exempted but it completely depends on your financial conditions, the state you are living in and if the asset is necessary. You must meet several eligibility criteria to file and your income is the most significant one. There is an entire set of factors to ascertain your income eligibility, however, generally, you should have little to zero disposable income.
- Chapter 13 – In this, you are provided with a plan to pay the debts off within the next 3-5 years but you can keep your assets. After it is all done and said, some of your debts might be discharged. However, you will have to qualify and this means your unsecured debts need to be less than $383,175 and your secured debts should be less than $1,149,525. Secured debt means the debt that is backed by the collateral like your car or house.
- Chapter 11 – It is similar to Chapter 13 but it is reserved only for businesses, and it means a restructuring or reorganization for the company. Various businesses can file for bankruptcy under Chapter 7 as well but that means insolvency of assets. This is why, Chapter 11 is a better option. Companies can keep their assets while keeping the creditors aside while continuing their operations. However, they must come up with a good plan so that they can pay off some of their debt or probably get it excused.
What Happens If You File?
If a person file for bankruptcy, they get an automatic stay. This puts a stop on the debt and blocks the creditors from collecting it. However, you must consult an experienced attorney like Attorney Walter Benenati for gaining complete knowledge about bankruptcy.
You must also know that filing for bankruptcy is not free and it can cost you a few hundred dollars for Chapter 13 and 7 and almost $2,000 for filing under Chapter 11. Moreover, you will need to pay the attorney fees. Bankruptcy laws can sometimes be confusing if you do not have knowledge about those laws. Therefore, it is recommended to consult an experienced lawyer so that sailing through bankruptcy laws is smooth and seamless.