The question of what bankruptcy is can be a little complicated because there is no one exact answer. In fact, there are several ways to provide a specific answer to this question, as there are several types of bankruptcy, depending on the circumstances of your financial situation. In general, bankruptcy refers to the process of dealing with a person’s debts by either liquidating their non-exempt assets or setting up a repayment plan. The most common types of bankruptcy are Chapter 13 bankruptcy and Chapter 7 bankruptcy, but what do those entail? And what are the other types of bankruptcy available to you?
Understanding the different kinds of bankruptcy
First thing’s first, let’s get the main two out. Chapter 7 and Chapter 13 are typically the best options, as people who are looking into filing bankruptcy tend to be in a financial situation where these are the best fit for them.
Chapter 7 bankruptcy tends to be a more last-resort option. It’s not the kind of thing one should run head-long into, as you have a lot to lose from the process. Not that you should avoid it altogether, but there are options available that can and should be examined first. One of the issues with Chapter 7 bankruptcy that often manifests is that business owners may be hurt yet more if they go through liquidation and wind up losing their business as a result. In this case, Chapter 11 may be a more ideal approach (which we will discuss later on below). When Chapter 7 bankruptcy is filed, the court puts an automatic freeze on a person’s debts. This then prevents creditors from garnishing wages, collecting debts, foreclosing on your home, and other issues a person considering Chapter 7 bankruptcy likely has to worry about.
In order to qualify for Chapter 7 bankruptcy, the debtor needs to be either an individual, a partnership, a corporation, or some other form of organization. The amount of debt also does not dictate whether Chapter 7 bankruptcy can be pursued. However, if the debtor’s bankruptcy petition was dismissed in the past 180 days due to the debtor dropping it due to creditors seeking relief from the bankruptcy court to recover property or not appearing in court, they cannot file. Ultimately, the goal of everyone involved in the Chapter 7 bankruptcy process is to ensure that an honest debtor be given the opportunity to have a fresh start.
Now, onto Chapter 11 bankruptcy. This one can be a bit complicated, but if you can make it work, it may save your business. This process is basically for those who wish to continue their business, while dealing with certain caveats. This involves restructuring its financial obligations. Namely, there needs to be a solution proposed either by you or by the creditors as to how the business should stay afloat. This solution must be — or at least is likely going to be — in the best interests of the creditors.
Next, we move onto Chapter 13 bankruptcy, a far more appealing option for many. The reason for this being an appealing option is that it is not nearly as potentially devastating as Chapter 7 bankruptcy can be. To get to the bones of things, Chapter 13 bankruptcy is a system to help you negotiate a payment plan. So instead of giving up non-exempt assets to pay off your debts like Chapter 7 works, Chapter 13 allows the debtor to pay off their debts in installments, usually over the span of three to five years. So long as the debtor is able to keep up with their repayment plan, they do not have to worry about things such as their home being foreclosed upon. In order to qualify for Chapter 13 bankruptcy, your unsecured debt must be less than $394,725, and your secured debt must be less than $1,184,200. This number is not going to be the same forever, as it is adjusted based on other factors. Additionally, debtors cannot file if they fulfill similar conditions as in Chapter 7 with a previous petition. Not that you should avoid it altogether, but there are options available that can and should be examined first.
The next types of bankruptcy tend to be much less common, though they have their time and place. In all likelihood, some of these will never be relevant to you. For example, unless you are a family farmer or fisher trying to protect their livelihood, Chapter 12 is not going to be a good fit for you. If you are, this is a great solution, as it provides a repayment plan similar to Chapter 13, but with more flexibility and higher limits. Chapter 15 bankruptcy also deals with a relatively small niche, only used for international bankruptcy disputes and to allow foreign debtors to use the U.S. bankruptcy courts. Chapter 9 bankruptcy, meanwhile, is a repayment plan specifically for towns, cities, school districts, and other similar organizations to pay off what they owe.
There are a lot of different ways that a person can deal with their debts. These solutions can be a little complicated to tackle on your own, which is why you should work with experienced Ohio bankruptcy attorneys. These attorneys know bankruptcy law like the backs of their hands, and they know exactly how to get you the best result without having to give up more than you should as part of the process. They can also help you figure out exactly what bankruptcy type is the right fit for your situation.
