Sometimes things appear so bad that declaring bankruptcy is your only real choice. Although you may be panicked and cornered, filing for bankruptcy is a serious decision that should not be taken lightly. To make the most appropriate choice, you need a thorough understanding of bankruptcy and the various options available. Bankruptcy in real life is a lot more severe than merely a method to lose a Monopoly.
What Is Bankruptcy
To declare bankruptcy is to convince a judge that you cannot repay your debts. The next step is to either have your debts wholly wiped out or set up a payment plan that works for you. Bankruptcy is filed for by people for many different reasons, including the loss of a job, a divorce, a severe illness, or the loss of a family member.
But filing for bankruptcy is a huge life event with far-reaching consequences beyond the financial sphere. It can follow you as you look for work, a place to live, or a business to start. If you have any reaffirmed debt when you recommit to the conditions of a current loan, child support, alimony, or student loans, filing for bankruptcy will not discharge them. Therefore, filing for bankruptcy is not the right choice if those are your only bills. In this case, bankruptcy sometimes differs with the state; say, in Virginia, the bankruptcy filing falls under the state’s federal law. If you have trouble navigating through filing, bankruptcy lawyers in Virginia will help you understand the chapter you are supposed to file under. Again they offer legal help on what you want to keep and know the right time to file.
Types Of BankruptciesÂ
Bankruptcy Under Chapter 7
Straight bankruptcy or liquidation bankruptcy is the most familiar form of personal bankruptcy. When you can’t pay your bills, in this case, the court appoints a trustee to facilitate selling your possessions if they have any worth and distribute the proceeds to your creditors, the people you owe money to. Usually, you can get rid of any unsecured debt you have, such as credit card or medical bills. However, as we’ve already established, this doesn’t account for debts like student loans and taxes, which can’t be discharged in bankruptcy.
Now, the court cannot order you to sell some items, depending on the state in which you reside. Most Chapter 7 bankruptcy filers can keep their homes, cars, and retirement funds, but this is not always the case. Bankruptcy under Chapter 7 won’t prevent a foreclosure, but it will delay the process. Reaffirming the debt indicates you are recommitting to the loan agreement and will continue making payments to keep the items for which you still owe money. However, the vast majority of Chapter 7 bankruptcies involve no-asset situations, in which there are no assets of sufficient value to be liquidated. The means test is used to make this determination; it compares your payment to the state average and analyzes your financial situation to determine whether or not you have enough disposable income and the means to repay a substantial portion of your debt.Â
Bankruptcy Under Chapter 13
Chapter 13 bankruptcy essentially reorganizes your debt. Over three to five years, you’ll be able to repay your secured debt and a portion of your unsecured debt through a court-approved monthly payment plan. The amount you owe and your income factor into the fixed monthly payment. However, the court can place you on a strict budget and monitor your every purchase pain.
Instead of losing everything, as in Chapter 7, you get to keep your property and catch up on non-dischargeable debts. Similarly, Chapter 13 can halt a foreclosure by providing you more time to catch up on mortgage payments. Filing for Chapter 13 bankruptcy allows you to regain financial stability at your own pace. When the bankruptcy court decides, it gives you more time to repay your debts. If you are required to return a loan as part of the bankruptcy settlement, your cosigner will be protected from collection efforts under Chapter 13. Chapter 13 includes a two-year waiting term before you may file for bankruptcy again, while Chapter 7 requires you to wait eight years. If any debts remain after a Chapter 7 bankruptcy is finalized, you can file for Chapter 13 bankruptcy to try to get them reduced.
Bankruptcy Under Chapter 11
Companies seeking reorganization often petition for bankruptcy protection under Chapter 11. An organization’s strategy to remain afloat and repay its debts must be filed with the court and its creditors. A Chapter 11 bankruptcy is an option for those with excessive debt to apply for Chapter 13 but a substantial amount of high-value property and assets, such as real estate investors. Unless you’re a professional athlete or a renowned person, you probably shouldn’t meddle with it. Filing requirements vary depending on whether the debtor is a single individual or filing jointly as a married couple. The following items fall under this category and must be submitted by debtors:
- Employers’ proof of payment, received before filing in a period of 60 days;Â
- AÂ credit counseling certificate and any debt repayment plan copy;
- A detailed breakdown of monthly earnings, including explanations of how and why revenue or costs could rise after a report is submitted.
- Any documentation of the debtor’s participation in a state or federally-recognized 529 plan or other education savings account.
Bankruptcy Under Chapter 12
Family farmers and fishermen can keep their homes and businesses instead of having to liquidate their possessions or face foreclosure with this repayment plan. In these situations, debtors typically collaborate with a bankruptcy trustee and their creditors to establish a payment plan that considers the debtor’s current financial situation. Both the 3 and 5year plans are available. Bankruptcy protection is available for both privately owned farms and fisheries and those owned by corporations. To qualify for Chapter 12 bankruptcy, a farm or fishery must meet several criteria. 50% of their fixed amount of debt must be associated with their farming business; debt secured by personal assets, such as a home, does not qualify.
Bankruptcy Under Chapter 15
Under Chapter 15, which oversees international bankruptcies, foreign debtors can seek protection in U.S. bankruptcy courts. The major goal of Chapter 15 bankruptcy is to improve the security and fairness of legal proceedings for debtors and creditors in international bankruptcies by facilitating collaboration and communication between U.S. courts, foreign courts, and their appointed representatives. Thus, jurisdiction is covered in great depth in Chapter 15. Furthermore, it aims to protect the debtor’s assets’ value and, ideally, save a failing business. A representative in a foreign insolvency, also called a cross-border insolvency case filed by a corporation, can have entry to the U.S. court system with the help of Chapter 15. This effort aims to create a functional and efficient framework for handling debtor, creditor, and asset insolvencies that span international borders.
Bankruptcy Under Chapter 9
Chapter 9 bankruptcy is another method for municipalities, school districts, and other similar entities to reorganize and repay their debts. Bankruptcy is not usually an option for cities. They need to be eligible and receive approval from their state government. In the United States, each state follows its procedure. Some states prohibit Chapter 9 bankruptcy altogether, while others permit municipalities to file for bankruptcy independently, subject to specific prerequisites. If the state agrees to the city’s request, the municipality can submit a petition to the federal government to reorganize its debts. A stay is automatically issued if a petition is filed, preventing further collection efforts against the municipal debtor. It may also safeguard officers of the municipality in particular instances. For a city to file for bankruptcy under Chapter 9, it must have a strategy for paying back its debts. Repayment should be made more manageable through the plan, which could involve the following:
- Reductions in outstanding debt principal or interest rates.
- Borrowing for a more extended period could reduce the municipality’s monthly payments.
- Consolidating debts into one smaller loan with more favorable conditions.
The municipality must submit the required papers to the bankruptcy court clerk to forward the case. However, if the municipality doesn’t meet the standards or has other alternatives, the court may rule that a Chapter 9 filing is inappropriate. Based on the circumstances of the case and the total amount of debt, the Chapter 9 process could take anything from a few months to several years.
Filing for bankruptcy can buy you time to figure out how to stop a foreclosure or which debts you want to reaffirm so you can keep your home and other valuables. It’s a frequent fallacy that if you declare bankruptcy, you’ll lose everything you own, including your house, car, and personal goods, and your ability to reestablish credit in the future. This is false, so keep that in mind. When filing for bankruptcy in Chicago under Chapter 13 and reorganizing your debt rather than liquidating your assets, you can keep specific property from being taken by creditors.
