Bankruptcy

Published
01/06/2016

Bankruptcy is the legal status of a person or business that cannot repay the debts it owes to creditors. Bankruptcy offers the individual or business the opportunity for debt forgiveness when those debts simply cannot be paid back, and it gives creditors the chance to regain some repayment based on the assets currently available.

 

There are several types of bankruptcy, known as “chapters.” In personal bankruptcy, the most common chapters are Chapter 7 and Chapter 13. In business, Chapter 7 and Chapter 11 are most common.

Personal Bankruptcy

  • Chapter 7 Bankruptcy
    Chapter 7 is considered straight bankruptcy, or liquidation. In Chapter 7 your assets are liquidated except those that are considered exempt (such as certain predetermined valued amounts of tools, books, household effects, vehicles etc.) as a means of paying down debt to creditors. Some debt cannot be discharged, including child support, student loans, and taxes.
 
  • Chapter 13 Bankruptcy
    Chapter 13 bankruptcy is considered a “reorganization” or “consolidation” of debt. This chapter is best for those who are still receiving income and can repay some of their debts, but not all of them. Chapter 13 avoids liquidation, so it is possible that you can avoid selling all of your property. This makes a Chapter 13 bankruptcy beneficial to those who have sentimental property that they would like to maintain ownership of. In Chapter 13, the court will mandate a payment plan, and once you complete the approved payments, the remaining debt is discharged.

Not everyone will qualify for a Chapter 7 or Chapter 13 bankruptcy. A bankruptcy attorney will help you determine whether you qualify for either a Chapter 7 or Chapter 13 bankruptcy and help guide you in making a determination of how to proceed.

Commercial Bankruptcy

The most common types of bankruptcy available to business entities are Chapter 7 and Chapter 11.

  • Chapter 7
    Like in personal bankruptcy, Chapter 7 is also straight bankruptcy in the commercial sector. If a company files for Chapter 7, it is shutting its doors. All assets will be liquidated in order to pay debts and legal fees. If the liquidated assets do not cover the money owed, secured creditors are grouped with unsecured creditors in order to file a claim for money still owed to them.
 
  • Chapter 11
    Much like the Chapter 13 bankruptcy available to individuals, a Chapter 11 commercial bankruptcy allows an entity to reorganize the business and negotiate a debt repayment plan with its creditors. Chapter 11 is for businesses that are still operating and generating revenue. It allows for reorganization of debt of up to $2,000,000. The purpose of Chapter 11 is to restructure debts while allowing the business to continue operating.

Hiring a bankruptcy attorney

Facing personal bankruptcy or the bankruptcy of your business is a difficult time. Deciding which chapter to file, and how to proceed can be complex and frustrating. With such high stakes, you’ll need an attorney experienced in bankruptcy. An experienced bankruptcy attorney can save you time and money, as well as alleviating some of the stress associated with filing for bankruptcy.