Options for Bankruptcy: The Four Main Types of Bankruptcy Filings and When to Use Them
July 15, 2020
If you are considering filing for bankruptcy, you might be surprised to learn that there are many ways to go about it. A successful bankruptcy allows you to “Start Fresh,” and the best bankruptcy filing type for you will depend on your personal circumstances. Before embarking on the process, it can be helpful to get a general understanding of the different types of bankruptcy filings that are available. You might be surprised to learn that many bankruptcy filings allow you to keep most or all of your assets and some allow you to stay in your home.
At Gravett Law, we strive to demystify the bankruptcy process and are committed to guiding our clients through complicated legalese with empathy and compassion. We’ve broken down the basics of the four most common types of bankruptcy filing below, highlighting the differences between each one. Use this article to get educated on your options, so that you can minimize stress while achieving the outcome you want.
Understanding the Four Most Common Types of Bankruptcy Filings
Many people don’t realize that there are many different kinds of bankruptcy filings. Among these, Chapter 7, Chapter 11, Chapter 12, and Chapter 13 are used the most. Each filing type is suitable for specific set of circumstances.
CHAPTER 7 BANKRUPTCY: LIQUIDATION
By far the most common bankruptcy filing type, an individual, sole proprietor, or other business can file for Chapter 7 Bankruptcy if they are so far in debt that their financial situation cannot be remediated. Designed for individuals and small businesses, this filing type requires that you liquidate all of your non-exempt assets in order to repay your personal debts. However, generally speaking, most of your assets are exempt, so most Chapter 7 bankruptcies allow most debtors to keep their assets. These are called “no asset” bankruptcies. At Gravett Law, we take the fullest number of exemptions the law allows.
Unlike other bankruptcy filing types, Chapter 7 filers are not expected to pay back any debt beyond what is produced during liquidation. The Chapter 7 filing absolves the filer, also known as the “debtor,” of most debts. There are certain exceptions to this, of course. If you have student loans, family support obligations, or a lien on your property, these types of debt are unfortunately not forgiven under Chapter 7. Normally a Chapter 7 takes about 60-90 days to complete.
You must, however, be eligible to file a Chapter 7, so we evaluate your individual circumstances closely to get you into Chapter 7 if at all possible.
CHAPTER 11 BANKRUPTCY: REORGANIZATION
Chapter 11 Bankruptcy is best suited for corporations, partnerships, and other businesses, and individuals who have generally demonstrated a financially productive business or income. Typically, large businesses use Chapter 11. Unlike Chapter 7, this filing type enables you to restructure any debts your business has incurred (with help from the court) without having to completely close up shop and liquidate business assets.
While Chapter 11 Bankruptcy is a great option for business owners who want to continue on with their companies while getting out of unmanageable debt, it’s worth noting that the court fees are much higher for this type of filing.
CHAPTER 12 BANKRUPTCY: FAMILY FARMERS AND FISHERMEN
Chapter 12 Bankruptcy filings are specifically designed for family farmers and fishermen, as well as any companies who own businesses that fit this description. Under Chapter 12, a farmer or fisherman may reorganize their debts without having to forfeit their business. A payment program is created that will enable the debtor to pay back what they owe to their respective creditors in a reasonable amount of time. A three-year repayment plan is most typical, but the court may also extend the timeline. This type of bankruptcy filing is intended to keep court costs more manageable for farmers and fishermen, who typically operate on thin margins.
CHAPTER 13 BANKRUPTCY: RESTRUCTURED REPAYMENT
Like Chapter 11 Bankruptcy, filing for Chapter 13 bankruptcy permits an individual, but only individuals, to reorganize their debts without liquidating their assets. But unlike Chapter 11, the process for Chapter 13 can be more straightforward and much less costly. Filing for Chapter 13 bankruptcy will not wipe out debt with a “clean slate,” as with a Chapter 7 filing. Instead, it grants the debtor the opportunity to commit to a repayment plan for three or five years while staying in their home and keeping their assets. This can be a good option if you are suffering from unmanageable debt but expect to be able to pay off a portion of that debt off over a longer period of time. With Chapter 13, you may also be able to halt foreclosure proceedings on your home as you repay your debts.
Bankruptcy Help Is Just a Phone Call Away
As you can see, there are many options when it comes to filing for bankruptcy. At Gravett Law, we work closely with our clients to determine the bankruptcy filing type that best suits their unique needs and budgets, ensuring peace of mind for you and your family. We take pride in helping our clients earn a Fresh Start so they can enjoy their lives and be present with their loved ones. Give us a call at 707-681-7127 to learn more about how we can help you get out from under debt and move forward with confidence.