What You Need to Know About Bankruptcy
Bankruptcy is a very difficult situation that many people find themselves facing. Some try their best to avoid it, but it ends up becoming the final option for people who have an unmanageable amount of debt. There are unexpected things that might happen, like loss or change of employment, medical bills, divorce or any unseen major expenses that can lead to bankruptcy. This can be seen as a last resort, but it is one that needs to be taken very seriously.
This is something that can happen to anyone. Some might be struggling financially for years; others could be very successful in business. With the constant change in our economy and the stock market, no one really can say that they are completely secure in their finances. Or if they are, there is always the possibility that their situation could change.
Typically, the most common reason for financial problems is due to credit card debt. With options now to carry more credit with higher balances, people easily find themselves in over their heads. Combine the higher balances with high interest rates and it can be a struggle to even pay the minimum due monthly. This leads to the inevitable, not being able to pay your debts. Sometimes filing for bankruptcy is the only way to get out of the debt you have found yourself in.
When it comes to bankruptcy, the debtors will file for certain chapters depending on the reason. The four main types of bankruptcy are Chapters 7, 13, 11 and 12. Chapter 7 is the most commonly filed, usually by individuals but also by businesses. Next is Chapter 13, but this can only be filed by individuals.
If a debtor files for Chapter 7, that because they want to discharge all their debt. Their property is divided into two categories, either exempt or non-exempt. An example of exempt properties is your automobile or home, and these can be kept as long as payment is kept up on them. If you stop making payments then the owner of the loan can repossess the property, long after the bankruptcy is final. Unsecured or non-exempt property is sold to pay off the financial obligations. Typically a Chapter 7 case will last anywhere from four to six months, it depends on the petition to the discharge date.
If you find yourself with unsecured debt, like medical bills and credit card debt, then filing for Chapter 7 is usually the best option. Collectively, if you do not own that many assets or your monthly income is not that high then filing for Chapter 7 makes sense. There is an advantage to this, the creditors cannot contact you while you the stay is in effect and also after the debts have been discharged.
Now, if a person files Chapter 13 and they are employed, they are usually trying to retain their assets while working out a payment plan. Also you might have equity in a home or other assets, and you don't want to lose them. This can be done through bankruptcy court and there is an opportunity to pay off the creditors with a payment plan. Once you create a Chapter 13 payment plan, you will be making payments to the court anywhere from three to five years.
When filing for Chapter 11 bankruptcy, this is sometimes seen as a strategic move. This is seen as reorganization, not necessarily as liquidation. This allows the company to stay in business while the court can reorganize the company's debt and obligations. Management might want to reorganize and the debtors can come out of this bankruptcy within months. Although it might take a few years and that depends on how complex the bankruptcy is.
With all cases of bankruptcy, the plans are introduced to the court and they make several reviews until reaching a verdict. The creditors will vote and if the plan cannot be confirmed then the court will either liquidate the business or the case is dismissed under Chapter 7.
Now when your plans have been accepted, the creditors are given priority from the courts. You are then freed from the majority of your liabilities once the assets are distributed. The creditors are then paid accordingly, depending on which portions they agree to. Obviously, the smaller the settlement the faster they will be paid.
Take the time to figure out how exactly you got to this point. Bankruptcy can definitely be a solution, but the problem is one that needs to be addressed. If you file for bankruptcy but do not make any changes to your management and spending habits, then odds are you might end up in this situation again.
