If you have found yourself in a position where you are unable to pay your bills, you should absolutely consider scheduling a bankruptcy consultation with a lawyer. Once you schedule your consultation, you should attempt to compile your financial documentation for your consultation. Financial documentation will likely include paystubs, tax returns, credit card bills, mortgage statements, bank statements, and any other documents that relate to your assets and debts. At your initial bankruptcy consultation with a Pecos Law Group attorney, you will be able to explain your situation and also provide the previously mentioned documents to the attorney so they have a more clear picture of your position. Once the attorney reviews your financial documents and discusses your position with you, the attorney will be able to advise you on what bankruptcy type will be best to help alleviate some of the financial stress you have endured. Read the guide below to gain a better understanding of the various types of bankruptcies that are most commonly filed by individuals and businesses:
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is likely the most common type of bankruptcy filed by debtors. The Chapter 7 bankruptcy is basically a liquidation of the debtor’s assets. In order to qualify for a Chapter 7 bankruptcy, you must pass the “means test”, which examines your income to determine if it is in excess of the requisite threshold. If you earn too much, then you will not qualify for a Chapter 7 bankruptcy and will need to explore your other options with your attorney, which will most likely result in a Chapter 13 bankruptcy. If you do qualify for a Chapter 7 bankruptcy and decide to file your case with the bankruptcy court, a trustee will take complete control over all of your assets and liquidate them for cash in order to distribute payments to your creditors. There are certain types of assets that are exempt from this liquidation process. However, in general, most of your assets will be reduced to cash so that the trustee can distribute payments to your creditors. If you have a creditor who has an unsecured claim, then that creditor can only get a distribution from your bankruptcy estate if you had assets that were liquidated and the creditor files proof of their claim with the bankruptcy court. Once the bankruptcy process is complete, you will receive a discharge that releases you from personal liability for the dischargeable debts in your case. This process usually takes a few months to finalize. Fortunately, during this process, your creditors will be prohibited from attempting to contact you so you will likely find yourself less stressed. If you do not qualify for a Chapter 7 bankruptcy because you do not pass the “means test”, then you will likely qualify for a Chapter 13 bankruptcy.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is also very common but it is quite different from a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, the debtor’s debt is more-so restructured, rather than discharged. The Chapter 13 bankruptcy is meant for debtors who have a regular source of income but have become overwhelmed with the amount of debt they have built up. A Chapter 13 bankruptcy is preferred by many debtors because it will allow the debtor to keep a valuable asset, such as a home. The debtor will put together a repayment plan with an attorney to present at the confirmation hearing. The repayment plan usually proposes a structured plan that allows the debtor to pay off debts in three to five years. In a Chapter 13 bankruptcy, the debtor will not receive a discharge of the debts until the debtor completes the repayment plan. However, during the repayment period, the debtor will be protected against lawsuits, harassment, wage garnishments, and other actions by the creditors. Many debtors prefer a Chapter 13 bankruptcy over a Chapter 7 bankruptcy because they will be able to maintain certain assets.
Chapter 12 Bankruptcy
A Chapter 12 bankruptcy is similar to a Chapter 13 bankruptcy but it is intended to provide relief to family farmers and fishermen who earn regular income. Like a Chapter 13 bankruptcy, the Chapter 12 bankruptcy debtor will propose a repayment plan that specifies how the debtor will pay off certain debts. The proposed plan should allow the debtor to pay off the debts in three years or less. However, the proposed repayment plan can span up to five years if the bankruptcy court approves the extended timeframe. A Chapter 12 bankruptcy trustee will manage the case and disburse payments to the creditors in a similar manner as a Chapter 13 bankruptcy trustee. However, the primary difference between the Chapter 12 bankruptcy and the Chapter 13 bankruptcy is that regular people who are not family farmers or fishermen cannot file for a Chapter 12 bankruptcy. Nevertheless, the biggest benefit of a Chapter 12 bankruptcy is that the family farmer or fishermen can continue to operate the business and receive protection from creditors while it completes the repayment plan.
Chapter 11 Bankruptcy
A Chapter 11 bankruptcy is often referred to as a reorganization bankruptcy. It is mostly used by businesses that want to continue to operate the business while they also repay creditors. The business’ repayment plan must be approved by the bankruptcy court after being evaluated through a disclosure statement provided to the business’ creditors. If the bankruptcy court approves the business’ proposed plan of reorganization and confirms the plan, then the business will be able to reduce its overall debts by repaying some and discharging others. The business also has the opportunity to recover assets, rescale its operations to become profitable again, and terminate certain leases and other contracts. The benefits of a Chapter 11 bankruptcy to a business are significant, as the debtor-business can obtain a reorganized business with a reduction in debt, which will likely allow the business to become profitable and in turn, increase the likelihood it will succeed.
The above explanation of a few types of bankruptcies should only serve as a guide for you if you think you may be in a situation where you might need to file for bankruptcy. If you are unsure about whether you will qualify or you have any questions at all, you should contact a bankruptcy law firm, such as Pecos Law Group, to schedule a consultation. The bankruptcy process can seem stressful but with an experienced attorney on your side, you will likely find yourself more at ease.