BANKRUPTCY: A BURDEN OR A LIFE SAVER
In 2019 over 22k businesses declared bankruptcy while nearly 773k bankruptcy cases were filed in total. It is quite a common phenomena and yet the majority of us don’t understand it! To be honest, it can be a bit overwhelming. So, let’s go over the basics. There are three types of filings you can make; Chapter 7, Chapter 11, and Chapter 13.
Chapter 7:
Chapter 7 bankruptcy, sometimes called a straight bankruptcy, is a liquidation proceeding. The debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors.
The debtor receives a discharge of all dischargeable debts usually within four months. In the vast majority of cases, the debtor has no assets that he would lose so Chapter 7 will give that person a relatively quick "fresh start".
One of the main purposes of Bankruptcy Law is to give a person, who is hopelessly burdened with debt, a fresh start by wiping out his or her debts. The most common debts for these filings include:
Medical bills
Unemployment
Divorce
Overextended credit
Large, unexpected expense
Chapter 13:
Another option for bankruptcy for individuals is the Chapter 13. This is more commonly known as a reorganization bankruptcy. Chapter 13 bankruptcy is filed by individuals who want to pay off their debts over a period of three to five years.
Chapter 13 bankruptcies are generally beneficial for people who have non exempt properties they wish to maintain. Chapter 13 also enables you to file Chapter 7 if you can’t stop incurring debt - yikes!
It is important to note that the following debt cannot be discharged:
Debt for trust fund taxes
Taxes for which returns were never filed or filed late (within two years of petition date)
Domestic support payments
Student loans
Drunk driving injuries
Criminal restitution
Civil restitutions or damages rewarded for willful or malicious personal actions causing personal injury or death
Chapter 11:
A Chapter 11 bankruptcy is filed by businesses and is quite similar to a Chapter 13. A Chapter 11 is available for individuals, but it is generally used by businesses to reorganize their debts and dealings so that they can be more financially solid.
When a troubled business is unable to service its debt or pay its creditors, they can file with a federal bankruptcy court for protection under either a Chapter 7 or a Chapter 11 bankruptcy.
Often, if the companies debts exceed its assets, then at the completion of the bankruptcy, the company’s owners or stockholders all end up with nothing. All their rights and interests are terminated and the company’s creditors end up with ownership of the newly reorganized company in the hopes that it will eventually succeed financially as compensation for their losses.
Credit Reports:
FACTA legislation requires that after 10 years, bankruptcies are taken off of your Credit Report. With that being said, bankruptcies can be an indicator to lenders and other creditors that you may be a risky subject to lend a mass amount of money to. Bankruptcies can be beneficial for those who feel like there is no other option and they need to start fresh. So depending on the situation, bankruptcy can actually be beneficial. Consult an expert consultant with us today to hear your options! For more on bankruptcies, check out our DIY Kit.
If you ever have questions, contact us - your expert consultants.
—
Solutions Team
