Has your credit card debt become overwhelming, and you’re looking for a way out? Do you want to file a bankruptcy claim to return to the right path and start over?
Various forms of bankruptcy are available in the United States for individuals and companies, with Chapters 7, 11, and 13 being the most frequently utilized.
Before you file for one, here’s everything you need to know about the types of bankruptcies, what debts you can get discharged with them, and how long they stay on your credit record.
Talk to an expert bankruptcy lawyer today to file for bankruptcy on your behalf and help you relieve your debts. Let’s dive in.
Who Should File for Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is the most commonly filed bankruptcy type in the US, making up 57% of the total bankruptcies filed in 2023.
It’s called “straight bankruptcy” because it’s the easiest to file and usually concludes within 4 to 6 months. It’s also called “liquidation bankruptcy” because It entails the sale of non-exempt assets in order to satisfy debtors. However, the majority of petitioners seeking Chapter 7 bankruptcy don’t have enough assets for sale, so they go through the process to discharge some of their debt.
Here, non-exempt assets are sold off and paid to creditors in order of absolute priority, starting with secured debt, such as bank loans, mortgage payments, and real estate leases. Then, unsecured debts like credit card debt and utility bills are paid off next. For a business, shareholders are paid last.
At the end of a Chapter 7 bankruptcy, the individual can emerge with several debts discharged, which means they don’t have to repay those debts again. A Chapter 7 bankruptcy claim stays on your credit record for up to 10 years.
Keep in mind that a Chapter 7 bankruptcy doesn’t absolve debts such as taxes, student loans, liens, child support, and mortgages unless the court determines to do so based on several factors.
Filing a Chapter 7 bankruptcy can be beneficial if you want to complete your bankruptcy case quickly to start afresh and begin working on raising your credit score again. However, only people that earn below the median income of their state qualify for a Chapter 7.
When to File for Chapter 13 Bankruptcy?
Chapter 13 is also called a “wage earner bankruptcy” because it’s for people who earn a regular income but have fallen back on paying their debts. It’s only available to individuals and married couples who can file one jointly.
A Chapter 13 bankruptcy stops foreclosure proceedings and allows the debtors to keep their property, such as their home, while providing a repayment plan that lasts 3 to 5 years. Any debt not included in the plan is discharged once the debtor has completed paying off the repayments. Like Chapter 7, a Chapter 13 bankruptcy remains on your credit record for up to 7 years.
To qualify for a Chapter 13 bankruptcy, you have to earn a steady income and not have debt above the limits set by the court. Also, you must not have filed another Chapter 13 bankruptcy case in the past 2 years.
After you file a Chapter 13 claim, you submit a repayment plan that spans 3 to 5 years. If approved, you pay the periodic amounts to a court appointed trustee who distributes the payments to your creditors.
Because of the slight complication here, it’s recommended that you get a bankruptcy attorney to file a Chapter 13 bankruptcy claim on your behalf.
Who Should Declare Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is also called “reorganization bankruptcy.” It’s mostly filed by businesses and joint ventures that want to remain in operation while slowly paying off their debt. Individuals can also file for Chapter 11 if their limits exceed Chapter 13’s.
Chapter 11 bankruptcy is also called “rehabilitation bankruptcy” because the business heavily cuts back on expenses, builds a plan to pay back its debt, and turns around the business for good. All these are done under the close eye of the Court.
A Chapter 11 bankruptcy is complex and doesn’t have a definite timeline. It can drag on for years as the business seeks to pull itself back together. If a business cannot reorganize itself and come out of debt, it must file for a Chapter 7 liquidation bankruptcy.
You can also get some debt discharged with a Chapter 11 bankruptcy claim, including supply and vendor contracts, bank loans, and real estate leases. The Court decides if the debtor has to pay all or part of what it owes to creditors. The business can even try to negotiate the amount of debts it owes.
Get an Expert Bankruptcy Attorney on Your Side
You need a competent bankruptcy attorney to help you file a bankruptcy claim, prepare the necessary documents, and go through the process. Contact Fakhoury Law today to learn more.
