Bankruptcy is a powerful tool that can save you from the brink of financial ruin. While there is a lot of social stigmas associated with its use, the most skilled business professionals use it frequently without batting an eye.
Bankruptcy isn’t something to shy away from. It’s a financial tool for use by the financially savvy. Doing so can drastically improve your financial outlook. There are many reasons to use bankruptcy law to protect or improve your life.
However, usually, when a regular person uses bankruptcy it’s the consequence of a personal tragedy. Citizens are often forced into bankruptcy due to excessive medical bills from a short hospital stay, because of a divorce, or because of any other major personal calamity.
There are several kinds of bankruptcy and choosing the right one can be a little daunting. You’ll need to hire a lawyer to file the paperwork for you and they can also help you out a bit about what is right for you.
Even though you’ll likely hire a lawyer later in the process, you should still try to learn as much about the process as possible before you get started instead of paying an expensive lawyer to tell you what you could have learned for free online. Here we will discuss the major types of bankruptcy so you can get an idea of what is right for you.
Chapter 7
This kind of bankruptcy filing is the quickest and most convenient. This form of filing is the cheapest and the simplest. But it isn’t without its own disadvantages either.
Chapter 7 allows you to liquidate all resources in exchange for the expungement of their debts. For example, a person has a lot of debt that they can’t pay back. So they surrender all of their goods to be auctioned and sold. The proceeds are then used to pay the debtors. Even if the amount is not sufficient, all debt will be forgiven.
On the other hand, this kind of filing can’t be performed if you’ve claimed bankruptcy in the last several years. It’s also only available for people who are making below the median income of your state.
Chapter 13
Along with Chapter 7, Chapter 13 is the other form of bankruptcy that is accessible to regular citizens. Contrary to Chapter 7, this form of filing is much more expensive and provides additional features that the more affordable filing doesn’t provide.
Chapter 13 is for wealthier individuals. The professionals behind O’Bryan Law Offices explain that the major benefit is that it provides asset protection. This allows people to absolve all of their debt while only liquidating expendable assets. Major assets are protected from auction to raise the funds needed to pay off the debtors.
Chapter 11
Chapter 11 bankruptcy is a bankruptcy filing that is typically reserved for businesses. It’s usually too expensive for normal people. However, it is becoming increasingly available to the common citizen.
Chapter 11 is well-suited for businesses because it allows the owners to keep their doors open without surrendering control of their business or assets. Debt relief comes in the form of a payment plan. Debts are not absolved, but collections will stop in favor of the plan.
This form of bankruptcy can save a business that is experiencing temporary hardship.
Chapter 12
This is a newer form of bankruptcy filing that protects laborers. This is intended to provide debt relief to farmers and fishermen that are unable to keep up with the debts incurred from their equipment. This filing is very similar to Chapter 13 except it is specifically designed to protect these tradesmen from losing their assets to the bank.
Regardless of the bankruptcy option that’s right for you, being well-informed will make your financial outcomes improve. Each kind of filing has its own advantages and disadvantages and picking the right one has the potential to save your financial situation.