The 3 Major Types of Bankruptcy
Filing for bankruptcy is not the best experience. But sometimes, it becomes the last option when one is in a deep financial crisis. However, filing for bankruptcy is not the end of the world. Besides, there are at least 3 major types of bankruptcy you can file. You only need to go through each and determine which one works best for you.
Simply put, bankruptcy is when an individual or organization seeks financial assistance to be able to stay afloat and possibly get a fresh start. Sometimes, the process can be tricky. It is better to hire a bankruptcy lawyer like the Cardenas Islam attorneys to help you make the right decisions and make the entire process easier.
Let us look at the 3 major types of bankruptcy you can file when you are in a financial situation.
The 3 major types of bankruptcy
Most times, your choice of the type of bankruptcy will depend on whether you are filing as an individual or organization and the type of debts you owe among other factors. The 3 major types of bankruptcy are –
Chapter 7 bankruptcy
Individuals, sole proprietorships, partnerships, and corporations that are no longer able to solve their financial problems can file for chapter 7 bankruptcy. In chapter 7 bankruptcy, the bankruptcy trustee will oversee the assembling and selling of the non-exempt assets of the debtors. The proceeds of that liquidation will be used to pay off the creditors. The Cardenas Islam lawyers will help you ensure that the process is smooth and transparent.
When the proceeds are exhausted, any remaining debt will be discharged. However, the debtor may lose his/her property during the bankruptcy process as most of your assets may be sold to repay debts.
The absolute priority rule is applied in Chapter 7 bankruptcy to establish how debts will be repaid. Unsecured debts are paid first before secured debts and non-priority unsecured debts are repaid.
Eligibility for chapter 7 bankruptcy
According to the Bankruptcy Code, certain criteria must be met before one can qualify for chapter 7 bankruptcy relief.
When you hire expert bankruptcy attorneys of the Cardenas Islam, you won't have to worry yourself about these details as we will handle the nitty-gritty for you.
Debtors that are in severe financial ordeal can file for Chapter 7 bankruptcy to get some reprieve. This type of bankruptcy can give such debtors a fresh start and protect them from threats and harassments from creditors due to the rule of the automatic stay.
However, Chapter 7 bankruptcy can have negative impacts on your credit score as well as your ability to secure mortgages or loans in the future.
Chapter 11 bankruptcy
This type of bankruptcy is also known as a reorganization chapter because it allows the debtors to reorganize their finances and come up with a debt repayment plan. It protects the debtors from losing their property since there is no liquidation of assets.
The bankruptcy court will confirm the proposed plan if it meets these requirements among others:
Once the repayment plan is approved by the court after the creditors must have accepted it, the debtors can go ahead to reorganize their income and expenditure. At this point, the individual or organization can start making profits that will enable it to bounce back. But you have to come up with a feasible repayment plan and the Cardenas Islam attorneys can help you create one.
The major advantage of Chapter 11 bankruptcy is that the debtor can still run the business while repaying the debt. However, because filing for Chapter 11 bankruptcy is expensive, it is often used more by corporate bodies than individuals. But if the individual’s debt is too high to qualify for Chapter 7 bankruptcy, then they can opt for Chapter 11.
Chapter 11 bankruptcy will not put the personal assets of the shareholders of the organization at risk. They will only be risking the amount of their investment to the business.
Also, the debtor has some control over the repayment period or other such reorganization details. A good bankruptcy attorney such as we have at Cardenas Islam can assist you in making all the right decisions to ensure you come out as unscathed as possible.
Chapter 13 bankruptcy
When an individual has an overwhelming amount of debt but has a regular source of income and thinks he or she can repay the debts over a given period, such debtor can opt for Chapter 13 bankruptcy. The debtor can file a plan to consistently repay the loan from a stipulated amount of future earnings. The payment will be made to the bankruptcy court trustee who will in turn make the payment available to the creditors. The court will protect the debtor from the creditors during the repayment period.
Depending on the amount of your property, you can keep all of your nonexempt property under Chapter 13 bankruptcy. However, you must repay your secured debts as at when due to avoid foreclosure or repossession of your property. Besides, if your nonexempt property is high, then the amount you will pay to your creditors will be higher too. With Cardenas Islam attorneys, you can rest easy and allow us to handle these grey areas for you.
Though Chapter 13 can put you under pressure to meet up with the repayment plan, it allows you to keep your home.
You do not need to make these decisions alone. Contact the Cardenas Islam law group today.