Bankruptcy is one frightening option for business owners. Even the word itself sounds dooming. Nightmare tales of going from being an industry leader to being bankrupt have always been in the news. From large corporations to small business, the word bankruptcy is often on minds if profits dive. But living in debt has also become normal.
The question is when to tell if it’s time to declare bankruptcy. The following questions can help you evaluate your business’ financial dangers, and if you may need to consider bankruptcy:
- Are you only able to make minimum payments on your credit cards?
- Do bill collectors call you frequently?
- Does the possibility of dealing with your finances cause anxiety?
- Are you using credit cards to pay for necessities?
- Are you considering debt consolidation?
- Are you uncertain about how much debt you have?
For any individual or business, the decision to file for bankruptcy isn’t one to be taken lightly,” Larry Myler of Forbes said. “It’s important to know about the options that are on the table before proceeding, and what to expect once you initiate the process of filing.”
Two of the most common types of bankruptcy are Chapter 7 and Chapter 13. Let’s take a deeper look.
1. Chapter 7 Bankruptcy
There are a number of reasons why people file for Chapter 7 bankruptcy. Whatever your reason,know you are not alone. Some common reasons for Chapter 7 are high medical expenses, unemployment, marital problems, and severely overextended credit.
A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13,” according to the U.S. Courts.“Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code.”
A Chapter 7 bankruptcy is also called straight bankruptcy. This allows you to liquidate your assets to pay as much debt as possible, where cash is distributed to creditors,such as banks and credit card companies. Then, within around four months, a notice of discharge is sent.
Your record of bankruptcy will remain for ten years on your credit report, but that is not something that will predict your future. Plenty of Chapter 7 filers were able to buy homes despite recent bankruptcies on their credit record.
For most, filing Chapter 7 gives them a fresh start. However, it’s not a great idea for everyone. Nearly all assets are taken and sold to pay creditors. If you own a family home, a business, or any other personal assets that you want to keep, Chapter 7 may not the best option.
2. Chapter 13 Bankruptcy
For those who have properties that they want to keep, applying for Chapter 13 bankruptcy could be a better option.
This type of bankruptcy can help you keep your home if you are behind on your mortgage or keep your car if you are behind on your car loan,” bankruptcy lawyers in Philadelphia, PA explained. “A repayment plan is filed with the court and generally lasts three to five years.”
Chapter 13 bankruptcy is also called reorganization bankruptcy, enabling people to pay their debts over a certain period of time, around three to five years. Individuals who have unchanging and foreseeable annual income are given a grace period.
Debts that remain at the end of that grace period are discharged. Once the court approves the bankruptcy, creditors are supposed to stop contacting the debtor. This allows you to continue working, paying debts, and still being able to keep property and possessions.
In Conclusion …
Needing help to get out of debt may be hard to admit at first. But keep in mind that it’s difficult to do financial things like this alone. That’s why the government has laws that protect creditors, as well as debtors. If your debt load is considered stressful, you may need to face the financial facts.
Maybe you’ve been trying to ignore the phone calls, or the massive pile of unpaid bills that won’t magically disappear. However, you will do yourself more harm if you don’t file for bankruptcy. A good lawyer coupled with the correct information could give you the needed financial footing, so you can get that fresh start you deserve.
When you are on the financial ropes, going the route of Chapter 7 or Chapter 13 bankruptcy can be the fresh start you need. Do you have a bankruptcy success story? We want to hear about it.