The Basics of Bankruptcy
Bankruptcy is a process by which any person or business declares that they can no longer make the payments required to satisfy their debts. Bankruptcy is and should only be treated as a last resort. This is so because of the heavy negative consequences of filing for bankruptcy and failing to pay your debts. Because bankruptcy destroys the filer’s credit rating or may cause the closing of the business, it should not be taken lightly or with the intent of defrauding one’s creditors. A bankruptcy lawyer is typically recommended for those people who wish to file bankruptcy.
The bankruptcy laws in the United States are divided into, and referred to by, their chapter numbers. Each chapter is a separate type or form of permissible bankruptcy. The most commonly utilized forms or chapters are:
- Chapter 7: This most common form of bankruptcy, particularly suited to individuals and businesses, permits near total discharge of debts after the liquidation of non-exempt assets for the repayment of debts.
- Chapter 11: This form is designed to allow for the reorganization, often called rehabilitation, of a business struggling with debt. Additionally, this form of bankruptcy can be available for individuals, provided they have very large debts and extensive assets.
- Chapter 13: This final common form focuses on reorganization or rehabilitation of debts for individuals. The key distinction to this Chapter is that the debt is not discharged but rather the debt is restructured in a way that allows for repayment over time. This form is generally only available to individuals who have a steady income.
Though the individual or the business filing for bankruptcy will be required to liquidate their assets to pay of all or some of their outstanding debts, there are exceptions to which assets can actually be seized. Some states allow the filer to retain one automobile, while most allow smaller items and belongings of solely sentimental value to be exempt from seizure, as examples.
Furthermore, there are certain types of debt that will never be discharged by filing for bankruptcy. Student loan debt will always remain, despite a full discharge under Chapter 7. So too will taxes owed to the state and federal governments. Spousal and child support obligation are also not relieved by this process.
If you are considering bankruptcy as a resolution to your personal or business financial struggles, be sure to invest in a quality bankruptcy attorney who will serve as your guide, timekeeper and counselor throughout this potentially difficult and complex process.