What Does It Mean to File for Bankruptcy?

Many people are afraid of filing for bankruptcy because they don’t exactly know what it means or what it involves. To put it simply, bankruptcy is a legal process that helps a person or business who can’t pay their debts to them wiped out or restructured. The details can vary depending on the specific type of bankruptcy you choose to file, but the process typically involves a lot of paperwork, court appearances, and working closely with a bankruptcy attorney. This blog post will guide you through the basics of filing for bankruptcy and what it means for your finances.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” is the process of selling off your assets to pay off your debts. Essentially, the court will sell all non-exempt assets, such as homes or a car over a certain value, to pay off outstanding debts. However, this type of bankruptcy is not for everyone, as there are strict eligibility requirements. You must pass a means test which shows that you have little to no disposable income. If you do qualify, you’ll be able to clear out your unsecured debt, like credit card debt, but secured loans like a mortgage or car payment will typically remain.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows individuals with a reliable source of income to repay their debts over an extended period (typically 3–5 years) through a payment plan set up by the court. Unlike chapter 7, you get to keep most of your assets in chapter 13, but you’ll need the court to approve your repayment plan. Your bankruptcy attorney will help you design the plan that allows you to pay off your debts while also maintaining a reasonable standard of living.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is commonly filed by businesses as it allows them to restructure their debts while still operating. Unlike Chapters 7 and 13, Chapter 11 bankruptcies are much more complicated, costly, and time-intensive. The case typically involves a lot of court appearances, liquidation of assets, and complex negotiations with creditors. If you’re a business owner considering chapter 11 bankruptcy, you should consult with an attorney to evaluate your options.

Meeting with a Bankruptcy Attorney

If you’re considering filing for bankruptcy, the first step you should take is to hire an experienced bankruptcy attorney. A bankruptcy lawyer will be able to guide you through every step of the process and ensure that you’re doing everything in your legal power to get back on track financially. Your lawyer will also be able to help you determine the best type of bankruptcy for your specific financial situation, so you get the most effective solution.

In conclusion, filing for bankruptcy is a complex legal process that can help alleviate unmanageable debt for both individuals and businesses. The type of bankruptcy you file will depend on your specific circumstances and financial situation. Working with an experienced bankruptcy attorney is crucial to ensure that you have the best possible outcome for your bankruptcy case. Remember, bankruptcy isn’t the end of the line. It’s a new beginning, and with the right legal guidance, you can overcome it and get your finances back on track.