Knowing when to declare bankruptcy is an important skill for both individual consumers and small business owners. Learn more about it and decide if it’s the best option for your financial situation.
Section I: Table of Contents
What Exactly Is Bankruptcy?
What Are the Different Types of Bankruptcy?
Individual Liquidation (Chapter 7)
Bankruptcy Reorganization under Chapter 11
Chapter 13: Asset Management and Repayment Strategy
When Should an Individual File for Bankruptcy?
When Should a Business File for Bankruptcy?
How to Declare Bankruptcy
- Examine Your Options
- Select the Bankruptcy Type
- Make a decision about hiring an attorney.
- Completing a Credit Counseling Course
- Fill out your counselling and legal forms.
- Pay Fees and Submit Forms
- Deal With Your Creditors
- Participate in Debtor Education Classes
What Exactly Is Bankruptcy?
Bankruptcy is a legal process initiated by people who are in excessive debt. Before requesting that their creditors work with them to resolve their debt with any remaining assets, they must sign a federal petition that considers their outstanding financial obligations or debts.
What Are the Different Types of Bankruptcy?
As individuals or business owners, people can accumulate too much debt, so various types of bankruptcy exist to address those situations. These are the specific chapters outlined in the United States bankruptcy code that you may wish to consider if you are unable to repay your debts.
Individual Liquidation (Chapter 7)
Most people who need to declare personal bankruptcy will do so under Chapter 7. A trustee is appointed by a federal court to assist the individual in selling property to repay lenders or creditors. Exempt property from Chapter 7 bankruptcy includes your car, pension, and household equity.
Bankruptcy Reorganization under Chapter 11
Small-business owners may be able to reorganise their assets, affairs, and debts by filing Chapter 11 bankruptcy. If the total value of these factors exceeds $5 million, an examiner will be assigned to assist you with the process.
This can be an advantageous step for business owners because it allows the company to remain open and operational while restructuring takes place. If the debtor does not offer the idea first, creditors may propose a Chapter 11 bankruptcy.
Chapter 13: Asset Management and Repayment Strategy
Individuals who file for Chapter 13 bankruptcy can keep their assets but must repay their debts within three to five years of the court’s approval. If you don’t miss or skip any payments, you won’t have to liquidate anything. The majority of those who do not receive approval for this bankruptcy are workers who do not have stable sources of income.
