More than 520,000 individuals and companies filed for bankruptcy in 2020. There can be several situations that force people into bankruptcy – real estate debt, new alimony and child support obligations, student loan debt, credit card debt, huge medical bills, litigation for non-payment of debts, unsellable property, etc. Nobody plans to be in financial trouble. It can be an extremely emotional time in your life, and it makes sense to seek advice from an experienced professional before you make any hard and fast decisions.
What is bankruptcy? It is an admission by an individual or a corporation that it cannot pay debts to its creditors. There are a few kinds of bankruptcy filings, and it is imperative that you understand the type of bankruptcy that most applies to your situation.
Filing for bankruptcy can provide incredible relief once your debts are cleared. Still, that doesn’t mean that all your problems will be solved immediately. Filing for bankruptcy can seriously harm your credit scores and make it nearly impossible to build them back up. Some kinds of bankruptcy could be attached to your name for up to 10 years. Your ability to secure loans for a home or other major purchases will be severely hampered. Your efforts to apply for a new job could also be affected.
Are there different kinds of bankruptcy? Yes. There are two common types of bankruptcy for individuals: Chapter 7 and Chapter 13. Chapter 11 is designed for company reorganizations while Chapter 12 applies to family-owned farms and fisheries.
Chapter 7 applies mostly to people with little or no disposable income. Referred to as “liquidation bankruptcy,” this means that most of their assets – including autos, appliances and almost anything other than their primary residence – can be sold off to pay their creditors.
Chapter 13, called “reorganization bankruptcy,” typically applies to people who have steady income. It allows them to keep their assets as long as they can meet their payment obligations as determined by the courts.
Understanding the maze of bankruptcy rules and filling out all the paperwork can be extremely challenging, especially as creditors are threatening to foreclose on your assets. Before you make any final decisions, you should contact an experienced bankruptcy attorney, who can help guide you through the legal process and ensure your rights are protected.