Disclaimer: the material presented in the article below should only be considered as a general overview regarding bankruptcy. Should you, or anyone you know, find yourself in a bankruptcy situation, it’s best that you speak to an attorney who’s well versed in bankruptcy. They can help you decide on what the best legal actions are to take.
When building your business, you’d never expect to be someday filing for business bankruptcy. Filing for business bankruptcy can be a scary process, but it’s necessary if you’re no longer able to pay your bills, rent, or your employee’s wages. It’s essential that you know even if you’re currently facing what seems to be the most significant obstacle to building your empire, you still have choices. Laws in regards to bankruptcy have changed throughout the years; it’s vital that you understand them. Here are the legal considerations that you need to know when you’re about to apply for business bankruptcy.
- Two Common Types of Bankruptcy
Chapter 7 Bankruptcy
Chapter 7 is also called the straight bankruptcy or liquidation bankruptcy. It will help discharge most of your unsecured debts such as credit cards and personal loans. The whole process of this bankruptcy lasts for about four to six months.
If you’re going to file for this bankruptcy, you’ll need to pass a “means test,” and have a certain amount of income. There’s also a possibility that you may need to sell any non-exempt properties.
Chapter 13 Bankruptcy
Chapter 13 is also called as the reorganization bankruptcy or the wage earner’s plan. This bankruptcy will help set you up for a repayment plan, allowing you to pay your creditors back within three to five years.
If you’re going to file for this bankruptcy, you won’t be required to liquidate your assets in the process. However, you’ll need to have a regular source of income to be able to pay the required monthly payments, if you want to apply for Chapter 13.
- Other Types of Bankruptcy
Chapter 11 Bankruptcy
Chapter 11 is also known as the repayment bankruptcy. It’s almost the same as Chapter 13, but it can only cover certain creditors. Unlike the first two types of bankruptcy, Chapter 11 won’t be able to help you wipe your slate clean and start over.
Chapter 12 Bankruptcy
Chapter 12 is also known as the fishermen and farmers’ bankruptcy because this bankruptcy is only available to family farmers and family fishermen. It has been made to help them avoid liquidation or foreclosure. Chapter 12 is almost the same as Chapter 13 but provides more benefits to debtors.
- Filing for Bankruptcy will Affect Your Credit
If you filed for bankruptcy, your credit history wouldn’t look clean, and in most cases, it will leave a negative mark for up to 10 years. Having a bankruptcy on your record will affect your credit score, making it hard for you to get low rates when applying for a loan or insurance.
You’ll be required to declare your bankruptcy filing when you apply for a job, fill out medical forms and government official reports. So, if you’re filing for bankruptcy, you need to make sure that this is your last option.
- Bankruptcy Files are Public
It’s essential that you know that bankruptcy documents are public. Anyone can access your records, and your name would be published in newspapers and online. Future employers, insurance companies, and even landlords can reject you because of your bankruptcy records.
You’d also need to open up your finances to the public by filing bankruptcy schedules. Your assets, expenses, income and your recent financial transactions are to be listed in these schedules. Lastly, if you get caught lying while filing for bankruptcy, you may end up losing the case and investigated by the FBI.
- Some Debts can’t be Discharged
You need to understand that filing for bankruptcy won’t mean that you’d be able to escape all your financial responsibilities. Some debts aren’t covered by the discharged, such as debts that are co-signed and child support.
- Bankruptcy is Expensive
You need to know that filing for bankruptcy can be expensive, whether you decide to hire a lawyer or not.
Cost of Filing for Bankruptcy:
Filing Fees – The cost of filing for bankruptcy starts at $310.
Conversion Fees – It would cost nothing to convert your Chapter 7 to Chapter 13 bankruptcy, but switching from Chapter 13 to Chapter 7 bankruptcy starts at $25.
Courses – Credit counseling or financial management courses would cost around $20 – $100 to start.
Bankruptcy will help you get a fresh start financially, but it’s not an instant fix. It’s not easy and fun, that’s why you need to tread carefully when filing for bankruptcy. This can be a difficult time for you, and you may not want to go through it again. To avoid this situation, figure out why you ended up filing for bankruptcy and try to learn what you can do to get in a better financial position. Hopefully, you won’t find yourself in the same situation again.
Bella Flanagan has dedicated much of her life to law, and her pieces as a writer are imbued with her wisdom obtained from over 20 years of experience in business. Bella enjoys hanging out with her grandchildren when she has the free time.