As the United States, once again, delves into tough economic times, many more individuals are considering bankruptcy as a last resort. Bankruptcy is a serious decision and involves appearing before a judge and admitting that any outstanding debts are henceforth unpayable; the judge then decides whether to erase the debts or plan for the individual to pay them back at a slower pace. Americans are forced to file bankruptcy for a variety of reasons, but the most common include job loss, divorce, medical emergency, or an unexpected death in the family. Before deciding, there are six types of bankruptcy that an individual should consider with a bankruptcy lawyer, like from Brandy Austin Law Firm, PLLC:
- Chapter 7. Liquidation or straight bankruptcy is the most common type of bankruptcy for individuals. In these proceedings, a court official oversees the liquidation of all of an individual’s valuable assets; the liquidated value then goes directly to their creditors to pay off their outstanding debts. Any remaining unsecured debt is typically erased. However, student loans and taxes are not erasable through any type of bankruptcy.
- Chapter 13. Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy reorganizes debt to make it more affordable for the struggling party. The court approves a monthly payment plan so that the person can pay back a portion of the debt over a period of up to three to five years. Unfortunately, the court also gets to instill a strict budget for the individual and tracks all spending over that period.
- Chapter 11. Chapter 11 bankruptcy is used to reorganize a business or corporation that has fallen under hard times. Businesses create a plan for how they will continue operating the company while paying off their debts; the court and creditors alike must approve this plan before it goes into effect.
- Chapter 12. Chapter 12 bankruptcy presents as merely a repayment plan that allows family farmers and local ranchers to get out of debt, all while avoiding having to sell their land and foreclose the property. While this type is similar to Chapter 13, it provides more flexibility and higher debt limits.
- Chapter 15. Chapter 15 bankruptcy deals with international issues and foreign debtors. By filing this type of bankruptcy, indebted individuals give foreign debtors access to American bankruptcy courts.
- Chapter 9. Chapter 9 bankruptcy is a repayment plan that allows towns, cities, and school districts to reorganize and pay back their debts accordingly.
As seen above, there are many different types of bankruptcy. As a result, the filing process may be confusing for first-time visitors; financial advisors can help uncertain individuals make these important decisions. Ultimately, there is an option for everyone and the appropriate choice primarily depends on who and what assets an individual claims.