Bankruptcy

What is bankruptcy?

Bankruptcy is a legal process that allows you to either eliminate your debts or work out a payment plan. Filing for bankruptcy is a complex legal process that involves following a set of procedures and filing out the right forms on time and on schedule.

Personal bankruptcy?

Perhaps you have lost your job or suffered from an unexpected medical crisis. Your home is in danger of foreclosure and debts are piling up. You may choose to take an extraordinary step: file for personal bankruptcy.

What can you do?

If you can pay some debts and have a regular income, you may qualify for Chapter 13. Also known as “debt restructuring,” the court will renegotiate the terms and interest payments on your debts, get rid of some of them and outline a payment plan that lasts five years. An alternative is Chapter 7, also known as “.” In this case, you sell off your eligible assets, pay off as much debt as the court decides and waive the rest. Student loan payments, alimony, child support and back taxes typically cannot be forgiven.

Business Bankruptcy

Your business’s debts—and monthly payments—have mounted beyond your ability to pay them. Perhaps you suddenly lost your largest customer, or economic fluctuations caught you off guard. To gain legal protection from creditors and some breathing room to reorganize or sell your business, you may consider filing for bankruptcy.

What type of bankruptcy can I use?

If you own a corporation, limited liability company, or partnership, your business can file for Chapter 7 or 11. If you own a sole proprietorship, you must file for personal bankruptcy under either Chapter 7 or 13.

Chapter 7 - Liquidation

If your business has few assets, overwhelming debt, and poor future prospects, you may choose to file for Chapter 7 or “liquidation.” In this case, your business stops operating. A trustee sells your eligible assets, pays as much of your business's debt as the court decides should be paid, and waives the rest of the debt.

Chapter 11

Under Chapter 11, your business continues to operate while you work with the courts to reorganize and outline a payment plan. Chapter 11 may allow your business to void key contracts such as real estate leases, supplier contracts, and union agreements. In some cases, the courts may appoint a trustee to manage the business.

Chapter 13 - Debt Restructuring

If you (and your sole proprietorship) can pay some debts and have a regular income, you may qualify for Chapter 13. Also known as “debt restructuring,” the court will renegotiate the terms of your debts, discharge of some of your debts, and outline a payment plan that lasts five years.