Bankruptcy is a legal process that can help individuals and businesses eliminate debt and get a fresh financial start. However, not all bankruptcies are created equal. There are several types of bankruptcy filings to choose from, each with its own set of rules and requirements. In this article, we’ll discuss the different types of bankruptcy filing so you can make an informed decision about which one is right for you.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is often referred to as “liquidation” bankruptcy because it involves selling off non-exempt assets in order to pay off creditors. This type of bankruptcy is available to individuals and businesses alike, but not everyone qualifies. To file for Chapter 7 bankruptcy, you must pass a means test that compares your income to the median income for your state.
If you qualify for Chapter 7 bankruptcy, most unsecured debts like credit card balances and medical bills will be discharged entirely. However, secured debts like mortgages and car loans may need to be reaffirmed or surrendered in order to avoid foreclosure or repossession.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is primarily designed for businesses but can also be used by individuals with high levels of debt who don’t qualify for Chapter 13 or Chapter 7 filings. This type of bankruptcy allows businesses to reorganize their debt while continuing operations.
In a Chapter 11 filing, the debtor typically submits a plan outlining how they will pay back their creditors over time. The plan must be approved by both the court and the creditors before it can be put into action.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is sometimes referred to as “reorganization” bankruptcy because it allows individuals with regular income streams to restructure their debts without liquidating assets. This type of filing is often used by people who do not qualify for Chapter 7 or have significant assets they want to protect from liquidation.
Under Chapter 13 bankruptcy, the debtor creates a repayment plan that lasts three to five years based on their disposable income after paying necessary living expenses (such as rent/mortgage payments). If the plan is approved by the court, most unsecured debts will be discharged at the end of the payment period.
Chapter 12 Bankruptcy
Chapter 12 bankruptcy is specifically designed for family farmers and fishermen who have regular income from these professions but are struggling financially due to unforeseen circumstances such as natural disasters or market fluctuations. It’s similar in structure to Chapter 13 but has additional provisions tailored specifically for farming/fishing operations.
This type of filing allows farmers/fishermen more flexibility in restructuring their debts than other types of bankruptcies since they may have unique challenges related specifically to their industry.
The Pros and Cons Of Each Type Of Filing
Each type of filing has its own pros and cons depending on an individual’s specific situation:
- Chapter 7: Pros include quick discharge of most unsecured debts; cons include loss of non-exempt assets.
- Chapter 11: Pros include ability for business owners/individuals with high levels debt/revenue streams to continue operating while restructuring; cons include high cost/complexity.
- Chapter 13: Pros include ability to keep important assets; cons include lengthy repayment period.
- Chapter 12: Pros include flexibility in restructuring debt based on unique challenges facing family farmers/fishermen; cons include limited availability only open those working in agriculture/fishing industries.
Choosing The Right Type Of Filing For You
When deciding which type of filing makes sense given your specific circumstances – consult with a qualified Montgomery bankruptcy attorney familiar with different types of options out there! They’ll provide guidance throughout the whole process ensuring every step taken according to best interests!
Bankruptcy can be an intimidating prospect but understanding different types of filings available goes a long way ensuring successful outcome down line! No matter what type of bankruptcy you are considering, you should make sure the one you file is tailored towards your financial needs, making it easier to find a path forward when feeling overwhelmed financially!