Although bankruptcy is not easy, it can provide financial freedom to individuals and businesses who are unable to move forward due their overwhelming debt.
The right type of bankruptcy will determine the extent to which bankruptcy can be a solution to your financial problems.
Understanding your options will help you to make an informed decision on how you want to proceed.
We’ll look at three of the most common types of bankruptcy, Chapter 7, Chapter 11 and Chapter 13. We’ll also discuss when each is appropriate and what goes into each process.
Find a bankruptcy lawyer who is trusted in Montgomery, AL. This step is critical to the bankruptcy process.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, also known as “liquidation” bankruptcy, is likely to come to mind when the term “bankruptcy” is mentioned. Chapter 7 bankruptcy is the most common type of bankruptcy. It involves liquidating assets to pay as much debt as possible. The remaining debt is then discharged. The result is? The result?
Chapter 7 bankruptcy can result in the loss of many assets, but the majority are “no-asset” cases. This means that the debtor does not have enough equity to be liquidated or seized.
State-determined exemptions also offer protections. Alabama bankruptcy exemptions includes the Real Property Exemption, which covers the cost of a residence; and Personal Property Exemptions, which can include personal property other than real estate, such as jewelry, cars, furniture, household goods and other items, or proceeds from personal injury suits. These are both capped amounts.
Some types of personal and real property are also completely protected from liquidation, with no limitations. Social security benefits, workers’ compensation and IRS-qualified pension accounts are all examples.
Certain debts, however, cannot be erased. This includes most student loans, alimony and child support, as well as some taxes, property liens and some liens on real estate.
A note? Although debt for business in Chapter 7 isn’t discharged, it has the same practical effect in that the credit is paid in full and the owners are free to leave the company.
You must meet certain criteria to be eligible for Chapter 7 bankruptcy. This can either be based on income or the “means test.”
Chapter 7 bankruptcy can last up to 10 Years.
What is Chapter 11 bankruptcy?
Unlike Chapter 7 bankruptcy, Chapter 11 bankruptcy involves a reorganization–rather than a liquidation–of debt. This type of bankruptcy usually provides relief for corporations and partnerships. However, individuals can also be eligible.
A Chapter 11 bankruptcy involves reorganizing debts and rolling them into a payment schedule. This plan can be approved by a Trustee appointed by the court, who will also oversee all important business decisions. Troubled businesses can remain open while still operating.
Chapter 11 can cancel many obligations, such as loans, leases and supply and vendor contracts, along with other contracts and debts. Any remaining debt will be discharged at the end of the plan. With Chapter 11 bankruptcy, there are no time or income limits.
Chapter 11 bankruptcy sounds simple, but it is a long, complex and expensive process. It is an option for businesses that need to protect themselves from creditors and improve their operations.
Marvel Entertainment, Six Flags and Sbarro, all Chapter 11 successes, are companies that have survived and become viable. In other cases, however, Chapter 11 bankruptcy can be used to buy time for businesses that are destined to fail.
What is Chapter 13 bankruptcy?
Chapter 13 bankruptcy is similar to Chapter 11 in that it focuses on restructuring debts, as opposed liquidation of Chapter 7 bankruptcy. Chapter 13 bankruptcy is similar to Chapter 11 but focuses on debt restructuring instead of liquidation.
This type of bankruptcy requires that individuals submit and execute a plan to repay their debts within 3 to 5 years. Chapter 11 bankruptcy is also known as a “wage-earner” bankruptcy. It involves paying a monthly predetermined amount to a trustee who pays creditors on behalf the debtor.
One of the primary benefits of Chapter 13 bankruptcy is the ability to prevent the forced liquidation of certain assets, such as a home. Missed mortgage payments can often be the first step in filing for Chapter 13 bankruptcy.
Chapter 7 vs. chapter 11 vs. chapter 13
The three types of bankruptcy have some commonalities, such as making debt easier to manage and ending collection efforts automatically. However, they also have key differences.
Here’s a quick breakdown of each bankruptcy type .
- Chapter 7 is the best option for businesses and individuals who have more debt than their current income will allow them to repay.
- Chapter 11 is the best option for large businesses and sole proprietorships who are in debt but want to continue to operate while restructuring to achieve profitability.
- Chapter 13 is the best option for individuals and unincorporated businesses who are unable meet their financial obligations, despite having regular income.
What type of bankruptcy is right for you?
In 2022, the United States alone will have 387 721 filings for bankruptcy. These all stemmed from various causes (or combinations), including medical crises with associated healthcare costs, loss of income and unaffordable loans, and excessive expenditure. They often require different solutions.
What is the takeaway? What’s the takeaway? The best bankruptcy depends on your individual situation and goals.
A Montgomery bankruptcy attorney can help you assess and understand your options so that you can make an informed decision about how to best position yourself to achieve financial stability in the future.
Find a Reliable Bankruptcy Attorney in Montgomery, AL
It’s also important to note that bankruptcy isn’t a given if you find yourself in debt. It’s important to speak with an attorney who knows your state laws and federal regulations.
A bankruptcy attorney with experience will work with you on exploring alternatives to bankruptcy, including credit counseling and debt consolidation.
The post Choose the Best Bankruptcy Type for Your Situation in Montgomery AL first appeared on Attorney at Law Magazine.