For any organization or individual, deciding to file for bankruptcy is often frustrating. However, a bankruptcy filing can give that much-needed relief. But you must learn about your options and seek help from a lawyer before you proceed. If you are thinking about filing for bankruptcy, keep the following in mind:
You Have Several Bankruptcy Options
When filing for bankruptcy as an individual, you can usually choose between Chapter 7 and Chapter 13 bankruptcy. Under Chapter 7 bankruptcy, your assets will be liquidated to pay your outstanding debts. This bankruptcy can discharge most or all of your debts. Although you may be able to keep some of your assets, you may need to liquidate nonexempt assets.
Meanwhile, Chapter 13 bankruptcy is a reorganization form of bankruptcy that includes making a payment plan for paying back your creditors over a certain period. This process can take 3-5 years to complete. Chapter 13 is ideal for those who have a regular income and can make monthly payments.
If your business is filing for bankruptcy, it can also file for Chapter 7. However, your company will need to stop operating at the end of the bankruptcy process. For struggling businesses, Chapter 11 bankruptcy is a famous option because it lets them continue to operate and reorganize their debts.
Bankruptcy Comes with a Cost
When you file for bankruptcy, one of the largest costs is hiring an attorney, most of which bill by the hour. Also, you may need to pay court costs. Typically, a Chapter 13 bankruptcy filing is costlier than a Chapter 7 filing. The reason is that the process takes several years to complete.
Moreover, you should also consider some long-term, non-monetary costs when you file for bankruptcy. If you are filing for bankruptcy personally or you have personal guarantees with the creditors of your business, your credit score will be seriously hurt. Bankruptcy will severely impact your credit score. As a result, you will find it hard to take out loans or get access to credit for several years.
Bankruptcy Cannot Discharge All Debts
Sometimes, filing for bankruptcy is your best option. But you should not think it can vanish all of your debts and financial obligations. Filing for bankruptcy cannot discharge certain debts such as student loans, child support, spousal support, real estate liens, taxes, and others. Also, you will need to attend a meeting with creditors before you complete the bankruptcy process. This gives your creditor a chance to dispute the debt discharge. If the creditors win the dispute, you may still owe them money.
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