Declaring bankruptcy can be the best decision you make in your financial future. It’s not the only option. It is important to choose the bankruptcy chapter that suits your needs best.
Because there are several bankruptcy options, contact a bankruptcy attorney in Cape Girardeau before making a decision that will affect your finances for years to come.
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Types of personal bankruptcies
You can file as a private person. There are two types of personal bankruptcy, which are identified by their respective places in the federal Bankruptcy Code.
Chapter 7: Liquidation
With 381,217 Chapter 7 cases filed in 2020, Chapter 7 is the most popular option. This represents 70% of all bankruptcies in 2020.
Although the law allows for the sale of certain assets to be distributed among creditors, 96% of Chapter 7 bankruptcies can be considered “no asset” cases. The filing party has no property that suffices to allow the court-appointed trustee the right to seize and sell it to repay creditors.
With Chapter 7, you will probably keep your property. Depending on how long Chapter 7 bankruptcy takes (typically between four and six months), you may emerge with all, but certain unsecured creditors discharged.
Chapter 13: Reorganization
In 2020, there were 154,341 Chapter 13 bankruptcy cases, which accounted for 28%. After you complete the repayment plan, usually within three to five years, any remaining unsecured debts (medical bills, credit cards, personal loans, etc.) can be discharged.
Chapter 13 is designed for those with steady incomes who wish to keep their car or home but are behind on their loan payments. Chapter 13 prevents foreclosure or repossession, while filers agree to a court-mandated repayment program that includes catching up on missed payments and paying at least some of their unsecured debt.
Types of Bankruptcy in Business
Most business bankruptcies fall under one of these three categories. There are two variations of the personal bankruptcy theme: Chapter 7 and Chapter 13. Chapter 11 bankruptcy is for businesses that are in a difficult financial situation. If a business can reorganize its operations and debt within three years, it might survive.
Bankruptcies of business are legal entities that include sole proprietorships, LLCs (limited-liability corporations), partnerships, professional associations, corporations, and others.
Chapter 13: Small Business Repayment Plan
Chapter 13 is normally reserved for individuals. However, sole proprietorships can use Chapter 13 to file small-business bankruptcy. The sole proprietor and individual are not distinguishable. In the eyes of law, they are one.
A Chapter 13 filing is required for any small business that wishes to reorganize or liquidate. It includes a repayment plan detailing how debts will be paid.
The amount you have to repay depends on how much you earned, how much you owe, and how much property is owned.
Do you want to file Chapter 7 bankruptcy liquidation bankruptcy? Chapter 13 protects personal assets such as a home that would be subject to seizure by a sole proprietor if they filed Chapter 7.
Chapter 7: Liquidation
A Chapter 7 bankruptcy is for businesses that are unable to provide a viable future or are burdened by debts. For an orderly liquidation, the owners must surrender their business to a court appointed trustee. Everything is subject to liquidation.
Creditors generally discharge all obligations, including leases, contracts and loans, overdue accounts, and credit cards, as well as other business debts upon completion. Although there is no discharge under Chapter 7 for business, the practical effect is that all assets of the business are liquidated, and creditors are paid as much as possible.
The former owners are exempt from any liability unless they bear the debts of the business.
Chapter 11: Business Reorganization
A bankruptcy does not necessarily signify ruin for a company. It would mean that there were three less major airlines (United, Delta and American), two fewer car makers (General Motors, Chrysler) and no Marvel Universe.
Chapter 11 filings — which soared during the coronavirus shut down in 2020 — allow troubled companies to protect themselves against creditors while they reorganize, pay off debts and reorganize assets.
If everything goes according to plan, the business will re-emerge a few years later. Often, it is smaller, more efficient, and more profitable. Creditors have also enjoyed a better return than if they had liquidated the business.
Chapter 11 can sometimes buy you time, but it is not always the best option. The plan to reorganize fails and liquidation is the result. Borders Books, once America’s No. 2 bookseller, was demolished in 2011. This is an example of a prominent example.
Chapter 12: Family Farmers and Fishermen
Similar to Chapter 13, Chapter 12 allows family farmers and family fishermen to submit a repayment plan for three-to-five-year periods if they meet certain criteria.
Chapter 12 offers more flexibility for structuring periodic payments, recognizing the seasonal nature of many small farms and fishing businesses.
