Navigating the maze that is bankruptcy can be a daunting responsibility to manage. To make matters more confusing, there are several different types of bankruptcy that you can file for. So, which one do you need? Which kind is the best fit for you? What are the pros and cons for each type?
Let’s go over each of them, what they mean, and how they work.
Because not all kinds of bankruptcy are the same, it’s important to know the differences between them, especially the more common types. Let’s dive in.
If you’re considering filing for bankruptcy, this is very likely the first option that you’re going to consider, particularly because it’s so powerful in giving you a fresh start.
Chapter 7 bankruptcy is also referred to as liquidation. This is the most common type of bankruptcy for individuals. What this means is that any of your assets that carry value will be sold to pay off creditors for any debt that you owe. (This means that individuals need to understand that Chapter 7 bankruptcy can result in a loss of property, unless it’s exempt.)
In the vast majority of cases, people do not have to give up property or money. In Nevada, there is a very powerful exemption (property you can keep). In Nevada, a person can have up to $10,000.00 in money and/or personal property that is exempt under 21.090(z) (Wildcard Exemption).
The only way you’re able to file for Chapter 7 bankruptcy is if the court determines that you don’t earn enough income to pay back the debt you owe. You have to be in a very tight situation financially to qualify.
One big benefit of Chapter 7 bankruptcy is that it provides immediate relief. The moment you file, it ignites an automatic stop on all collections. This means that creditors can’t contact you, and all garnishments will halt. It can even protect you from evictions and repossessions.
While it might be common and offer a number of benefits, note that filing for this type of bankruptcy can have long-lasting consequences. In fact, it remains on your credit report for 10 years. This is important to understand, because some individuals mistake bankruptcy for an easy way out with no repercussions. Having a bankruptcy filing on your credit report can make it very difficult to do things like get a car or an apartment. Be prepared for your credit report to take a hit, and know that it’s going to take time to build it back up.
Bankruptcy is indeed a chance for individuals and businesses who are in trouble to get back on their feet. It’s there for you when you’re in an incredibly difficult position. Regardless, it will affect you for years moving forward.
As opposed to forgiving your debt like Chapter 7 does, filing for a Chapter 13 bankruptcy essentially means that you’re going to reorganize your debt. The total amount that you owe doesn’t change. However, you’ll have a more manageable, feasible plan for tackling it.
The plus side to Chapter 13 is that you get to keep your assets. However, the way it works is the court will put you on a monthly payment plan so that you can catch up on your debt over the next three to five years. They’ll base the payment amount off of your income and how much debt you owe, so that your monthly payments aren’t totally out of the question. You can trust that they’ll give you a strategy to get out of debt without being crushed financially.
However, they’re also going to put you on a very strict budget and even monitor everything you spend money on, to keep you accountable and ensure that you’re using your money wisely. It’s important to understand that other people and institutions will be weighing in on everything that you do with your money.
Chapter 11 bankruptcy is similar to Chapter 13 in that it will reorganize your debt. However, this type of bankruptcy applies to businesses and corporations, including sole proprietorships and partnerships. It can be filed by the debtor, and under certain circumstances, a creditor.
These businesses will have the opportunity to present a plan for how they can keep their operations running while simultaneously paying off the debt that they owe. After coming up with this strategy, the business needs both the court and their creditors to sign off on it.
This is a promising alternative to companies who feared that they were certain to have to close their doors. You have other options. You’ll likely still experience financial discomfort for a period of time, but it gives you hope for keeping your business up and running.
Understandably, you might be feeling confused regarding which type of bankruptcy you should file for. They’re each unique and come with their own pros and cons. There are countless details to understand, but you don’t have to do it alone.
The law firm of Corey Beck is here to help. Bankruptcy is one of our specialized practice areas, and we’re thoroughly experienced when it comes to offering legal guidance for individuals and businesses struggling to pay off their debt.
We’ll help you determine the best route for paying off your debt and getting your life or business back under control again. We pride ourselves on transparency, and we’re committed to clearly showing you the most effective path to take, based on your financial struggles and future goals.
If you’re considering filing for bankruptcy and need help, contact us to request a free consultation today.