Dec 242013

Tali-smallerMany people have incorrect ideas about bankruptcy. Some people think that it means that all of your debts are wiped out. Others believe that successfully declaring yourself or your business bankrupt means that all your possessions will be taken away.

The truth is that bankruptcy, while definitely a difficult period in the life of any individual, family or business, is really just a matter of course in anyone’s life.

Sometimes debts become unmanageable. It happens to people from all walks of life and all backgrounds. Bankruptcy laws are as generous as they are because the government recognizes that it is usually better to allow an individual or a business to find a new way to manage debts rather than let their assets be liquidated. In this sense, when you seek a bankruptcy, you are doing a public service by enabling yourself and your business to continue operating and contributing to your community.

Bankruptcy Chapters

Bankruptcy is a solution that should not distress anyone who needs it. It is, however, a complex matter that is divided into versions that are known as chapters. The three primary chapters that concern most are Chapters 7, 11 and 13.

All forms of bankruptcy share similarities at the beginning. The petitioner is the one who seeks a declaration of bankruptcy. The petitioner submits paperwork claiming a state of bankruptcy. Usually this is accomplished through a legal representative such as a bankruptcy lawyer. This legal counsel will help the petitioner determine which type of bankruptcy to seek. Ultimately, the decision is up to the petitioner as to which form of bankruptcy best suits his or her situation and wishes.

Chapter 7 Bankruptcy

A Chapter 7 bankruptcy is the form with which many people are familiar and is more or less the least complicated. If the judge determines that a declaration of bankruptcy is warranted, then he or she will discharge the petitioner’s debts. This effectively erases them and all obligations to pay them. The bankruptcy is a legal decision and cannot be challenged by creditors once it has been accepted.

However, there is more to this form of bankruptcy than the simple discharge of debts. If the debtor has significant assets, they will be seized and liquidated in order to compensate the creditors as much as possible. The debtor always has the option to protect certain assets and reaffirm specific debts. By reaffirming debts, the debtor agrees in court to continue paying the debt in order to avoid losing the asset associated with this debt. The debt cannot be discharged during an indefinite period that follows the official declaration of bankruptcy. Typical assets that can be protected include homes and cars. Each state has its own limits on what can be protected.

Chapter 11 Bankruptcy

Chapter 11 of the bankruptcy code is mostly aimed at corporations. Both the goals and the subjects of this version of bankruptcy are different than a Chapter 7 bankruptcy. A business submits the relevant paperwork when it believes that its income is not capable of servicing its debts in the expected fashion.

Companies seek this legal resolution to overwhelming financial obligations with the hope that the court will help them to restructure their debt service and make it possible for the business to continue functioning in some fashion. Without the availability of the Chapter 11 bankruptcy, such businesses would have to allow creditors to dismantle their operations and sell their assets. This would effectively destroy the business and leave all of its workers unemployed. For that reason, the government permits businesses which can demonstrate some possibility of recuperating the opportunity to restructure their debts.

Chapter 13

This form of bankruptcy is available to both businesses and individuals. It is an attractive alternative for some individual debtors because it offers more opportunities to protect assets. However, Chapter 13 does not erase debts as does Chapter 7. Instead, Chapter 13 allows debtors to reorganize as does Chapter 11. Petitioning debtors must submit paperwork that includes a plan to repay debts while protecting assets. Creditors have the opportunity to agree to the plan or even craft it.

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 Posted by at 3:34 pm
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