If you have considered filing for bankruptcy, then things are not pretty good. Seeing your debts pile up with no idea how to pay them can be depressing. And that may leave you without a choice other than filing bankruptcy. Some reasons why people consider bankruptcy are loss of jobs, business failure, and sickness, among other things.
If you’ve come to this, it’s not the end of life, though. Something can be done. It’s time to review various bankruptcy options to see which one will work best for you. But before we get to the options, let’s first discuss what bankruptcy is and why it’s important, especially if you reached the end of the rope.
What’s Bankruptcy?
In simplest terms possible, bankruptcy is approaching a judge and admitting that you cannot pay your debts. It’s hard, right? Even so, filing bankruptcy can ease your stress. The judge can decide to erase your debt or come up with a reasonable payment plan.
Regardless of how hard or humbling this seems, you are not alone. In fact, US bankruptcies exceeded 600 in 2020 thanks to the global pandemic.
Some people don’t mind filing bankruptcy, provided it relieves stress. However, bankruptcy is a serious life event in that it may haunt you in the future. For instance, it might follow you when purchasing a house, starting a business, or applying for a job. In short, bankruptcy only suppresses the symptoms but does not solve the problem.
Bankruptcy does not clear all debts. Some of these debts include student loans, reaffirmed debt, and alimony or child support, and government debts. Therefore, if you are struggling with either of these debts, bankruptcy won’t work for you.
Different Types of Bankruptcies
The aim of filing bankruptcy is to clear debts. But not all bankruptcies are created equally. Below are six types of bankruptcies;
· Chapter 7 bankruptcy
· Chapter 13 bankruptcy
· Chapter 11 bankruptcy
· Chapter 12 bankruptcy
· Chapter 15 bankruptcy
· Chapter 9 bankruptcy
Chapter 13 and 7 are the most popular, but we’ll discuss each of them in detail.
Chapter 7 Bankruptcy
It’s alternatively known as straight or liquidation bankruptcy for individuals. This is a case where a court appoints a trustee to oversee the sale (liquidation) of your valuable assets to help raise money to clear your debts. The remaining unsecured debts such as medical bills or credit cards are erased. But you must not forget that bankruptcy does not clear the debts we mentioned earlier.
Note that there are some possessions a court can’t force you to sell, but this will depend on the state you live in. You may be allowed to keep necessities such as retirement accounts, a car, and your house in chapter 7 bankruptcy.
Unfortunately, chapter 7 bankruptcy can’t prohibit a foreclosure. Instead, it can only delay the dates. To keep an item you acquired through debt, you must reaffirm a debt. That’s saying that you’ll recommit to keep sending payments. You can only be eligible for chapter 7 bankruptcy only if the court affirms that you are not making enough money to clear your debts.
Chapter 13 bankruptcy
Chapter 7 can clear your debt, but chapter 13 reorganizes it. The court comes up with a monthly payment plan. That way, you settle a portion of your secured debts in 3-5 years. Monthly payment amounts will be calculated based on your debt and monthly income. However, the court lays down some measure on your spending.
Chapter 13 bankruptcy allows one to keep their stuff, not to mention that it can stop a foreclosure. That way, you’ll have time to update your mortgage. Anyone is eligible for this bankruptcy, provided their secured debt is not more than $1,257 850, and their unsecured debt isn’t more than $419 275.
Chapter 11 bankruptcy
This is used to reorganize a corporation or a business. Businesses plan how they can run the company as they pay off their debts. The creditors and the court must agree on this plan.
Chapter 12 bankruptcy
This entails a repayment plan that allows fishers and family farmers not to sell their assets. It also prevents foreclosure. It holds the same values as chapter 13 bankruptcy, but it’s more flexible and features higher debt limits.
Chapter 15 bankruptcy
This one focuses on international bankruptcy issues. It gives foreign debtors the mandate to be heard in U. S bankruptcy courts.
Chapter 9 Bankruptcy
Chapter 9 bankruptcy is for municipalities. It allows school districts, towns, and cities to develop a plan that can help them pay back their debtors.
Finally, bankruptcy is admitting that you can’t pay off your debts. The court can clear your debts or come up with a reasonable repayment plan. Bankruptcy doesn’t work for some debts such as students’ loans, government loans, and alimony, among others.