Understanding Your Options When Filing Bankruptcy

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If you are struggling to meet financial obligations, either in your business or personal life, there are options to get back on track. While it should not be the first choice, filing bankruptcy is an option -- but the filling can be complicated and you may want to have a bankruptcy lawyer help you work through the process. What are the types and options of bankruptcy? Here's a look.

Chapter 7 Bankruptcy

This filing is basically a liquidation of all assets to repay creditors. A trustee is assigned to the case, and they will determine the value of the assets and then start the process of liquidating them. Once the assets are liquidated, the remaining debt is discharged.

Most businesses will avoid filing Chapter 7 because their capital to operate is gone and if they somehow generate income after the filing is closed, the creditor can attack it as it was not part of the filing. You can file Chapter 7 as in individual as well, but it will leave you with few assets, including houses, cars, and other valuable items.

Chapter 11 Bankruptcy

This is perhaps the most common filing as it allows for the company to retain assets and continue to function during the process. The business will typically reorganize, which often includes workforce reductions and cost cutting measures to try and get back on track. The filing is complicated, though, so a bankruptcy lawyer is a must here. If the company is very large, the potential for an entire team of lawyers to be necessary is high. The filing has to be handled precisely, or the company may not recover and continue to operate after the suit is settled.

If you are a business owner considering Chapter 11, get a lawyer with a good reputation for precise work and attention to detail. You do not want to miss anything when filing Chapter 11.

Chapter 12 Bankruptcy

This one is a little different as it is intended for farm owners, specifically. A failing farm may have no choice but to consider filing Chapter 12, but under this filing, the farm owner will continue to own the property and equipment on the farm. The intention is to allow the farm to continue to operate and allow the owner time to recover from the financial losses they might have. The farmer will have to work out a repayment plan, but will be able to continue working and making money to try and make the farm profitable again.

Chapter 13 Bankruptcy

Without question, this is a big one. It is common for individuals and is hard to work through. You will want to retain a lawyer and have them guide you through this process. Like Chapter 11, in a Chapter 13 filing, the debtor will retain ownership of the assets they own and the repayments to creditors are typically stretched over 5 years. The judge may order something different, but typically 3 to 5 years is the term. The upside here is that you can keep your house and assets, but you may be ordered to pay a pretty steep payment to the court for several years to come.