Bankruptcy is a legal remedy that provides relief for individuals and organizations that have accumulated an overwhelming amount of debt. However, bankruptcy is not a decision without consequences, so it is important to understand what the different types of bankruptcies are and which one may be the best option for you.
1. Chapter 11 Bankruptcy
If you are considering a business bankruptcy Columbia MD, Chapter 11 is one of your main options. This type of bankruptcy is usually utilized to reorganize a corporation or business. You will need to create a plan to continue your business while paying off your debt and get that plan approved by the court and your creditors. This type of bankruptcy is also sometimes used by individuals who have debt that exceeds the limits to qualify for Chapter 13 and have a large number of high-value assets.
2. Chapter 7 Bankruptcy
This is the most common type of bankruptcy filed by individuals. When you file this type of bankruptcy, you are agreeing to have a trustee appointed by the court oversee the sale of all of your unprotected assets to pay off your creditors. In most states, debtors are allowed to protect their home, auto and retirement accounts. After this bankruptcy, most of your debts will be discharged. However, if you still owe money on property, such as your home or car, bankruptcy doesn’t stop the creditor from foreclosing or repossessing if you don’t make payments.
To qualify for this bankruptcy, the court must determine that you do not have the financial means to pay back a significant portion of your debt. Most people who qualify do not have unprotected assets that are worth the cost of selling them, so the court elects not to seize anything. However, some debts, such as student loans and taxes can not be discharged in bankruptcy. Additionally, filing bankruptcy remains on your credit report for 10 years and you can not file again for eight years.
3. Chapter 13 Bankruptcy
Chapter 13 is different than Chapter 7 because it reorganizes, rather than forgiving, your debt. The court structures a monthly payment plan that is based on your income and the amount of debt you have. You then are required to repay your debt in three to five years.
There are six types of bankruptcy, including the above three. If you are unsure which type makes the most sense for you, an attorney or financial professional can assist you.