Bankruptcy is the legal status of the person who can no longer pay the debts owed to their creditors. This a legal status of a person that explains their incapability of paying their debts. This process begins when either the debtor or creditor file a petition. All of the debtor’s assets are evaluated and they are then used to repay some portion of the excessive debt. When the bankruptcy proceedings are completed, the debtor is relieved of the debt they were in prior to filing for bankruptcy.
Bankruptcy is a way to offer a fresh start to the debtor and provide some compensation to the creditors. This process helps not only the debtor but also the economy by giving debtors another chance to get back what they lost.
Know Your Options
There are four possible ways to declare yourself bankrupt.
By using chapter 7, the debtor can walk away from all of their debts. They can use their liquid assets to pay off the creditors and after that, neither creditors nor any third-party collectors can attempt to collect the debt. Individuals and corporations can both apply for bankruptcy using this chapter. This type of bankruptcy is quick and preferable. One of its major drawbacks is that once it is filed, the debtor loses all of their assets. Furthermore, not every debtor is eligible for this chapter. If a debtor is not eligible for chapter 13, only then they are found eligible for chapter 7.
Using this chapter, the debtor is allowed to repay all or part of their debt with the help of a three to five-year repayment plan. They’ll pay the money to the court, who will then pay it to the creditors. The drawback in this is that the creditors can question the repayment plan, but the appointed judge has the final say. Using chapter 7, the debtor loses all of their assets but gains a start fresh, while this one allows them to keep their assets while paying the loan back in a way that suits them and the creditors. There are restrictions on this chapter as well; the debts must be between the limits set by the federal government.
Chapter 11 is used by financially struggling business and allow them to regain their position in the market. They follow the same concept of chapter 13; organizations are allowed to keep all their assets and work out a repayment plan to pay off the creditors. This chapter is quite time-consuming and expensive. It is usually used by organizations and in rare cases, individuals whose debt limit exceed the ones set in chapter 13.
This chapter is specifically for farm owners. It’s the same as chapter 13, and the only major difference is that more than 50% of the debt must be repaid from the income of a farm or fish farms. Chapter 12’s limits also exceed the limits set by the federal government for chapter 13.