Bankruptcy is often perceived as the end of the world, but it isn’t necessarily so. It’s a way to take control of overwhelming debt and give you a fresh start. It also may help you get back on track with payments if you’re behind, protect co-signers and even save your home from foreclosure. But there are several implications that can follow you throughout your life, including a stigma, credit impact and the loss of property.
There are many different types of bankruptcy, but the two most common are Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, also known as liquidation bankruptcy, a trustee will sell your non-exempt property and distribute the proceeds to creditors. That can include a car or home, fine jewelry, art and stamp collections, collectible items and even your clothing. It can be a quick process that usually takes four months from filing to a discharge, but it can also be more complicated than that and it doesn’t clear all debts. For example, student loan debt (although some members of Congress are working to change that), a federal tax lien and alimony or child support debt are not cleared by bankruptcy.
With Chapter 13 bankruptcy, which is known as a wage earner’s plan, you’ll file a repayment plan with the court that allows you to keep some of your property in exchange for repaying some or all of your debt over three to five years. You’ll make those payments to a trustee, who will then distribute them to your creditors. At the end of your repayment period, most of your debts will be discharged.
Chapter 11 bankruptcy is typically reserved for businesses that want to stay in operation while they reorganize their debts and pay creditors over time. This is a much more complex and costly process than either Chapter 7 or Chapter 13, and it can take years to conclude.
The final type of bankruptcy is Chapter 9 bankruptcy, which is available to municipalities that need financial relief and protection from creditors. Municipalities can use Chapter 9 to develop a plan to manage their debts by getting longer debt maturities, accessing new loans or receiving interest reductions.
Whatever kind of bankruptcy you choose, it is a serious decision that should be made with the assistance of an experienced attorney. If you are struggling to meet your debt obligations, it may be time to consider bankruptcy as an option. But it is important to remember that bankruptcy doesn’t eliminate all debts, and the credit damage associated with bankruptcy can last for years. If you are considering bankruptcy, please contact us to schedule a free consultation with an experienced bankruptcy lawyer. We can assess your situation and recommend the best path forward to a financial fresh start.
