Filing for bankruptcy is a tough process.
You cannot handle the entire process alone and need proper understanding of all elements.
You have to analyze the timelines, limits, and other aspects for not issues later.
There are different types of bankruptcy that cater to your specific needs.
So, it is necessary to go through all the details to file for the right bankruptcy type and get all the benefits for your current financial situation.
Here, you will get all answers to common questions like what is the bankruptcy process or how long does the bankruptcy process take, etc.
What Is The Bankruptcy Process?
In legal terms, Bankruptcy refers to a process that helps the debtors to clear all/partial debt.
Once filed, they don’t have to deal with severe legal consequences.
It helps individuals/businesses to obtain relief from their debt that they can repay.
Also, it makes sure that creditors receive some payment back.
However, it will depend on the current financial situation of the debtor.
With this, the debtors get a fresh financial start.
Once you file for the bankruptcy process, your creditors will stop all the collection attempts legally.
You must hire a professional attorney to guide you through all the steps be it picking the right type or handling all legal proceedings.
Types of Bankruptcy
Have a look at all the different types of Bankruptcy below:
Chapter 7 Bankruptcy: Liquidation
Want to repay the unsecured debt? Go for Chapter 7 bankruptcy.
If you are dealing with pending medical bills, credit card balances, etc., this bankruptcy type is an ideal choice.
But there are some eligibility criteria.
You have to pass the means test. In this test, your income will be compared to the state median.
The bankruptcy liquidates your properties and assets to repay some or all your debt.
There are some non-exempt assets.
You can keep your primary property, household goods, clothing, and some other things.
If you don’t have any other valuable assets then you may not have to repay any unsecured debt.
Chapter 13 Bankruptcy: Reorganization
Have a regular income but can’t handle large debts? Go for Chapter 13 bankruptcy.
They apply this type of bankruptcy to reduce the large debt amount. The best thing here is that they can keep their assets.
They can repay the debt in 3 to 5 years with a proper repayment plan.
You have to propose a plan to creditors.
If they don’t accept it, you have to negotiate the terms to come to a common ground.
The length of the repayment plan will depend on your income.
It is an ideal choice for homeowners who have missed their mortgage payments.
They can slowly repay them and keep their property.
Chapter 11 Bankruptcy: Business Restructuring
Businesses can restructure their finances with this type of bankruptcy.
They don’t have to liquidate their assets.
A business under debt can reorganize its debt while staying under the supervision of a bankruptcy court.
It can continue the operations and work with the creditors for favorable loan terms.
The process of bankruptcy is lengthy and complex.
You have to deal with multiple negotiations with your creditors and stakeholders. It is an ideal choice for a business looking to regain profitability.
Less Common Bankruptcy Options
Here are some of the less common types of bankruptcy.
- Chapter 9: The option is suited for municipalities like cities, school districts, etc. They can reorganize the debts with this type. It helps the local governments to offer public services while negotiating new terms with their creditors.
- Chapter 12: It is the ideal choice for family farmers and fishermen. They can restructure their debts and continue their operations. It provides flexible plans to repay the debt according to the nature of their profession.
- Chapter 15: This bankruptcy deals with cross-border cases. The petition Is applied by the debtor in the home country. It offers easy cooperation between the courts of different jurisdictions during the whole process.
How Long Does The Bankruptcy Process Take
Every bankruptcy type has a different timeline of completion.
Chapter 7 will take around 4-6 months to complete and your assets will be liquidated.
Chapter 13 will allow you to keep your assets but you have to repay the debt in 3-5 years.
With Chapter 11, the timeline can lie between some months to several years.
Post-Bankruptcy Recovery Period
Having any type of bankruptcy on your credit report will make it difficult to borrow money in the future.
The Chapter 7 bankruptcy will stay on your credit report for 10 years.
If you file for Chapter 13, then it will stay on your credit report for 7 years. So, you have to build your credit score slowly.
Try to maintain a job and pay all your bills on time. Also, maintain some bank balance and avoid falling into debt again.
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