What Are The Different Kind Of Bankruptcies – Bankruptcy is an option if you have too much debt. Find out if bankruptcy protection is right for you, the differences between types of bankruptcy, when to file, and what to expect.
It can be confusing to distinguish between different types of bankruptcy and to know when it is appropriate to file.
What Are The Different Kind Of Bankruptcies
In this guide, we’ll cover Chapter 7 and Chapter 13—the two most common types of bankruptcy—and we’ll explain what happens when you file for bankruptcy, how to do it, and the questions you should ask yourself to determine if bankruptcy is right for you. you
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Bankruptcy is a legal process for individuals or businesses that cannot pay their outstanding debts. You can go bankrupt in one of two main ways. A more common way is to voluntarily file for bankruptcy. The second way is for creditors to ask the court to declare bankruptcy.
If you decide to file for bankruptcy on your own, there are several ways to do so. You may want to consult with an attorney before proceeding so that you can find the one that best suits your situation.
There are other types of bankruptcy filings that are less common and more expensive for small businesses, such as Chapter 11. This type of bankruptcy is for businesses with $2.5 million or more in debt, or for businesses owned by LLCs or partnerships. Chapter 11 bankruptcy is similar to Chapter 13, but is usually only for businesses.
The Small Business Administration Act of 2019 made Chapter 11 less costly for small businesses, giving them more flexibility to negotiate bankruptcy terms with creditors. But this is still less than Chapter 13. You may want to talk to an attorney if you feel Chapter 11 bankruptcy is right for your business.
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Filing for bankruptcy will automatically keep your creditors’ claims against you. This means that your creditors must stop trying to collect the money you owe them. They will not be able to:
Your case will be assigned to a trustee, who is a lawyer who will oversee your case. The officer will send a notice to your creditor and schedule a hearing.
After that, the process depends on whether you have filed for protection under Chapter 7 or Chapter 13 of the federal bankruptcy code.
Chapter 7 is one of the most common types of bankruptcy. In Chapter 7 bankruptcy, you will:
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There are certain assets—such as limited amounts of cash, clothing, household goods, and cars—that you are allowed to keep, but these exemptions vary depending on the state in which you live.
Once your assets are liquidated and your creditors are paid off, any remaining debt you owe will be forgiven unless you confirm your debt. Reaffirmation of debt is when you voluntarily give up protection through a bankruptcy discharge and agree to be responsible for the debt. Reconfirmation is selected to retain certain assets and avoid payments.
Not everyone can file Chapter 7 bankruptcy. If your income is too high, you may need to file Chapter 13 bankruptcy instead.
If you are unable to file Chapter 7 bankruptcy, or if you have some money to pay off creditors and have assets you want to keep, Chapter 13 bankruptcy may be an option for you. In Chapter 13 bankruptcy, you will:
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Once these milestones are reached, your remaining debt that is eligible for discharge is erased.
Chapter 13 is a good option for people on a fixed income who have enough money left over each month to pay their debts, but want a breather and more time to pay off their debts.
Depending on how you choose to declare bankruptcy, your assets and liabilities will be affected in different ways. In Chapter 7 bankruptcy, many of your assets are subject to liquidation to pay your creditors. In Chapter 13, you keep assets while you work on a repayment plan for your debts.
For small business owners with a lot of personal debt, bankruptcy can help them stay in business. It is important to note that business debts are not discharged with Chapter 7 or Chapter 13 unless you are the sole owner and personally liable for them.
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Certain business assets can be excluded from a Chapter 7 bankruptcy filing, for example, if your business is service-based and does not have significant equipment or inventory, you may be able to continue operating your business after paying off your business debts through bankruptcy.
No form of bankruptcy can relieve student loan debt. Some people, such as some government employees, are eligible for student loan forgiveness that does not involve filing for bankruptcy.
If you need help managing your student loan debt, you should find a lender to help you manage your repayment options or look into debt consolidation.
In a bankruptcy filing, your home and mortgage will be listed as assets to determine your ability to repay. Depending on the type of bankruptcy you pursue, your mortgage can be affected in different ways:
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If you choose to confirm your mortgage in Chapter 7 bankruptcy, you may be stuck with responsibility for your mortgage after your bankruptcy. If you can’t make the repayments, you won’t be able to file Chapter 7 bankruptcy for several years, and creditors may be able to sue you to collect.
To declare and file bankruptcy, complete a credit counseling class to learn about bankruptcy, options, and managing your own finances.
After completing the course, you must file a petition with the United States Bankruptcy Court in the federal district where you live. This application shows your:
You must also send a copy of your most recent tax return with your application. You can have an attorney prepare a petition for you, or you can request bankruptcy forms and instructions from a US court.
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Chapter 7 is sometimes referred to as “outright bankruptcy.” Chapter 7 bankruptcy liquidates your non-exempt assets to pay off as much of your debt as possible. Cash from your estate is distributed to creditors such as banks and credit card companies, and you will typically receive a notice within four months.
To file for Chapter 7, you must pass the bankruptcy means test. The only people exempt from this are disabled veterans who file for bankruptcy to discharge debts incurred while on active military service or who have debts arising from business operations.
Your bankruptcy record will remain on your credit report for 10 years. But for many, Chapter 7 offers a new beginning.
A Chapter 13 bankruptcy is also known as a restructuring bankruptcy. Chapter 13 allows people to pay off their debts over three to five years. For people with consistent, predictable annual income, Chapter 13 provides a grace period. Any debt that remains at the end of the grace period is paid off.
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Once the bankruptcy is approved by the court, the creditor must stop contacting the debtor. Bankrupt individuals can continue to work and pay off their debts for years to come and still retain their assets and property.
Most people take their financial obligations seriously and want to pay their debts in full, but knowing when to file for bankruptcy and when to negotiate or use other strategies can help you on your way to financial health.
Here is a list of questions that can help you assess your financial health and give you insight into whether bankruptcy might be right for you. You should also discuss these issues with an attorney.
Credit cards typically have high interest rates on open balances. This means your balance can quickly increase if you only make the minimum payment. If your balance is high to begin with, it can quickly spiral out of control.
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Constant phone calls from collectors can be annoying and stressful reminders of your debt. Contact each creditor and see if they are willing to negotiate a lower balance or lower monthly payment.
Paying for basic necessities with a credit card earns interest on those purchases. For this reason, you should aim to pay for these items only with a debit card.
The debt comes from many sources. Consolidating your payments into one large loan can help you keep track of your outstanding debt with one monthly payment. This can also add more time to your repayments, as the new loan will come with new payment terms.
Facing foreclosure or car foreclosure can be difficult, but taking these tough steps can help you pay off your debt and avoid filing for bankruptcy.
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Your expenses should be covered by your income with some buffer space for emergencies. If your monthly payments exceed your take-home pay, you are a candidate for bankruptcy.
Uncertainty about all your outstanding debts is cause for concern. Whether your balance has grown and you don’t know the total amount, or you’ve forgotten the creditor who sent your debt to collection, you should consider other repayment options if you can’t determine how much you owe.
Bankruptcy does not arbitrarily discharge all debts. Some debts, such as student loans, cannot be discharged in bankruptcy. If you have trouble paying your debts, bankruptcy won’t cover it.