Bankruptcy is a legal process where businesses that are dealing with huge financial problems can either discharge debts or create a repayment plan so that they can recover from this unfavorable situation. Many types of bankruptcy exist, and each one has its rules, benefits, and consequences, so it is important to choose wisely and think about long-term results. Let’s check out what you need to know about different types of bankruptcy.
Chapter 7: Liquidation
Chapter 7, also known as Liquidation, is the bankruptcy option for people or companies who have no ability at all to pay their debts and are overwhelmed with them. By using this type of bankruptcy, they can completely wipe out most unsecured debts, like credit card balances, medical bills, personal loans, etc. In this case, a court-appointed trustee will review the case and the financial situation and determine which assets are non-exempt. This means that such items can be sold to creditors, and in that way, a person or a company can pay off their debts. Luckily, many states make sure that people won’t lose some of their most important assets, like their house, car, or other similar types of property. The whole process is relatively quick, but the bad side is that not all debts can be solved this way. For example, student loans, child support, and some tax obligations remain, and this type of bankruptcy cannot be used in these cases.
Chapter 13: Reorganization
Chapter 13 bankruptcy, also known as reorganization, is perfect for people who have a steady income and want to repay their debts while keeping their property. They can create a manageable repayment plan that will usually take from 3 to 5 years. In Chapter 13, people will work with the court to develop a repayment plan based on their income and abilities, where secured debts, like mortgages or car loans, are the first to be repaid, while unsecured ones, like credit card balances, have only a partial repayment. When dealing with this situation, it is best to seek advice from an experienced Jonesboro Chapter 13 bankruptcy lawyer, who can help individuals get back on track and make a fresh new start. With Chapter 13, people can get rid of some of their debt for very little money while keeping their house, car, and other important things they own, and having a lawyer by their side will make things much easier. However, this chapter requires discipline and strict organization, as they will need to make regular payments to their trustee, and the process requires patience, as it can take several years to complete.
Chapter 11: Business reorganization
Chapter 11 is used primarily for businesses that want to pay off their debts while continuing their work undisturbed. It helps them renegotiate the terms of their payments with creditors, which reduces debts and creates a plan that will help them stay afloat during tough times. In this chapter, the business stays in control of their daily operations, while at the same time repaying their debts, and this is quite helpful, as it often leads to the reduced amount that is owed, and it can also extend payment deadlines. When the court approves a certain plan, then the business must follow it strictly if it wants everything to end properly. The key benefit of this chapter is that it allows businesses to keep their operations, communication with partners and customers, and suppliers, while at the same time resolving their financial issues. However, it can be quite complicated, take some time, and be rather expensive, which is why companies must think carefully about whether it is the best option for them and their needs. This one is also a public notion, so the business’s financial situation can easily become widely known, which may turn off some of their customers or partners, and it can affect their reputation, which is not what they may wish during these challenging times.
Chapter 12: Family farmer or fisherman reorganization
As the name suggests, this type of bankruptcy is designed for farmers and fishermen, and it is tailored to their specific needs, like fluctuating income and seasonal expenses. In this case, they can propose a repayment plan that lasts from 3 to 5 years, and the plan always considers seasonal needs and income, as farmers and fishermen depend on this in most cases. In this chapter, they can also keep their property, like homes, cars, livestock, and other assets, which gives them more freedom to organize their repayment and helps them with paying off their debts. Yet, the process can be quite challenging and requires careful consideration and thinking about what is best for a specific case. Farmers and fishermen can always consult a bankruptcy lawyer to help them find the best solution for their situation, helping them move forward to a better and fresh financial start.
Chapter 9: Municipality bankruptcy
This type of bankruptcy is designed only for municipalities, cities, towns, counties, and other local entities that are struggling with their overwhelming debts. Thanks to this chapter, they can organize their repayment plans while at the same time being able to provide the necessary services to their residents. The main goal is to create a plan that will allow the municipality to continue with its basic operations and meet its residents’ needs while at the same time regularly paying off its debts. Also, this chapter provides legal protection from creditors and allows municipalities to have complete control over their operations all the time, unlike some other chapters where trustees have the main word and manage everything. Chapter 9 can be a highly complicated and lengthy process, so local entities must work closely with attorneys and other knowledgeable people to make sure they will make the best decisions, especially in such tough moments when they are overwhelmed with financial strain and pressure.
Bankruptcy can be a stressful and challenging process, but sometimes, it is the only way to get rid of many debts and start with a new vision and fresh goals. Companies and individuals must think carefully about which chapter suits them the most, as this will determine whether they will be successful in this process and how they can deal with this challenge.
