Bankruptcy is the process of filing with the federal government when a business or person can no longer afford to pay off their debts. The main upside to bankruptcy is that a business or individual can escape all debts while creditors are still paid off. This gives the business or individual a new chance to start again, though it is not with a clean slate (the bankruptcy will remain on a person’s credit report). Here are the most common chapters of bankruptcy and what they mean.
Chapter 7
This chapter of bankruptcy is strictly for individuals suffering from immense debt that they cannot pay off. Individuals have the ability to rid themselves of the debt by filing for Chapter 7 bankruptcy. The payoff for this process works through the liquidation of your assets. Many assets are exempt from this process, so you do not need to worry about losing everything. When the applicable assets are sold, the money is used to pay the creditors you owe. Bills for your credit card, medical expenses and utility expenses are among those you can file for in bankruptcy.
Chapter 11
Chapter 11 bankruptcy is for struggling businesses that are unable to pay off debts related to their business. While this form of bankruptcy does not automatically eliminate all debt, it does create a new plan for how to effectively deal with the debt, including coming up with new ideas for income and keeping creditors at bay in the meantime. This chapter can result in a major reorganization of the structure of a business or company. The main benefit of Chapter 11 bankruptcy is that the business is not dissolved in order to liquidate assets to pay off debts.
Chapter 13
Finally, Chapter 13 is the third most common form of bankruptcy filed. This chapter is specifically designed for consumers who have racked up a significant amount of debt over spending (but no more than the limit as assigned by the current year’s federal laws). A person may decide to file Chapter 13 instead of Chapter 7 when there is a chance of losing something valuable to liquidation with Chapter 7. When you file for Chapter 13 bankruptcy, you will create a plan to pay off your debts within the next few years.
Bankruptcy can be a complicated process that you’ll want help with every step of the way. A bankruptcy lawyer can lead you through your options and help you make a positive decision for your future. Consider contacting a law firm about how bankruptcy affects tax debts, similar to a lawyer from The Law Offices of Marty D. Martin.