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What is Bankruptcy, and how does it work? Everything you need to know.

What is Bankruptcy

A man looking sad because he has to file for bankruptcy.

For several reasons, some businesses get to a point where they seek a fresh start. For starters, they may be so bogged down by debt that they can’t keep up with payments. Additionally, their creditors may put so much pressure on them that it’s impossible to run the business effectively. In these situations, businesses typically need a fresh start—and that’s where Bankruptcy comes in.

What is Bankruptcy?

Bankruptcy is a legal process that provides businesses and individuals with a way to escape crushing debt loads. When a business or individual files for Bankruptcy, an important thing to understand is that it’s not entirely about eliminating your debts. Instead, the goal of Bankruptcy is to reorganize your finances so that you can eventually get back on your feet and begin rebuilding your credit.

Why do Individuals and Businesses declare Bankruptcy?

There are several reasons an individual or a business may declare Bankruptcy. Sometimes, they take on more than they can handle and find themselves unable to make ends meet. This situation typically arises for various reasons, including poor management, unexpected expenses, or bad luck. Whatever the reason, if a business can’t pay its debts, it may decide that Bankruptcy is the best way to get out from under the debt and start fresh.

Another common reason individuals and businesses declare Bankruptcy is because their creditors are putting too much pressure on them. When a person or an entity owes money to its creditors, those creditors may take action to try to get the money they’re owed. They try different ways to collect the debt, from making frequent phone calls to the business to hiring a debt collector. In some cases, creditors may even take legal action against the business. If a business faces this type of pressure from its creditors, it may decide that Bankruptcy is the best way to deal with the situation.

What are the different types of Bankruptcy?

What is Bankruptcy

Six Types of Bankruptcy

Chapter 7
Chapter 9
Chapter 11
Chapter 13
Chapter 12
Chapter 15
There are several different types of Bankruptcy, but the three that are most relevant to individuals and businesses are Chapter 7, Chapter 11, and Chapter 13.

Chapter 7:

This type of Bankruptcy is also sometimes referred to as “liquidation” because it involves liquidating some of your assets to pay off creditors. In Chapter 7, a court-appointed trustee will oversee the sale of your business’s assets, and the proceeds from those sales will be used to pay off your debts. Once your debts have been paid off, the case will be closed.

Chapter 11:

Chapter 11 Bankruptcy is generally used by larger businesses that need to reorganize their finances but still want to stay in operation. In Chapter 11, you’ll submit a plan to the court that outlines how you propose to pay off your debts. Once the court approves your plan, you’ll make payments to your creditors according to that plan.

-Chapter 13:

This type of Bankruptcy is also sometimes referred to as “wage earner’s Bankruptcy” because it’s designed for individuals who have a regular income but still can’t afford to pay their debts. In Chapter 13, you’ll submit a repayment plan to the court, and once the court approves it, you’ll make payments to your creditors according to that plan.

Other types of Bankruptcy include :

  • Chapter 12: This type of Bankruptcy is specifically for family farmers and fishermen.
  • Chapter 15:  This type of Bankruptcy is for businesses with assets in multiple countries.
  • Chapter 9: Municipalities: This type of Bankruptcy is for cities, towns, and other local government entities.

What is the difference between Chapter 7 and Chapter 11, Chapter 13 Bankruptcy?

The main difference between Chapter 7 and Chapter 11, Chapter 13 Bankruptcy is that in Chapter 7, your business will be liquidated, which means that a court-appointed trustee will sell your assets to pay your debts. In contrast, in Chapter 11 and Chapter 13, you’ll submit a plan to the court outlining how you propose to repay your debts. Once the court approves your plan, you’ll make payments to your creditors according to that plan.

Another significant difference between Chapter 7, Chapter 11, and Chapter 13 is that in Chapter 7, there is no time limit on how long you have to repay your debts. In contrast, in Chapter 11, you usually have between three and five years to repay your debts; in Chapter 13, you also have between three and five years to repay your debts.

How does Bankruptcy work?

The first step in the Bankruptcy process is to file a petition with the court. This petition can be filed by either the business or the business’s creditors.

If the business files the petition, it’ll file it along with other vital documents, including a list of its assets and liabilities, its creditors, and a statement of its financial affairs.

Once the petition has been filed, the court will appoint a trustee to oversee the case. The trustee’s job is to ensure that the Bankruptcy process is carried out fairly and orderly.

If the business has filed for Chapter 7 Bankruptcy, the trustee will oversee the sale of the business’s assets and use the proceeds from those sales to pay off the business’s debts.

If the business has filed for Chapter 11 Bankruptcy, the trustee will oversee the development and implementation of the repayment plan.

Once the business’s debts have been paid off, the Bankruptcy case will be closed.

What are the benefits of filing for Bankruptcy?

What is Bankruptcy

A list of the advantages and disadvantages of filing Bankruptcy.

There are several benefits of Bankruptcy which is why it may be the best option for your business.

Protection

One of the main benefits of Bankruptcy is that it will give you protection from your creditors. Once you’ve filed for Bankruptcy, your creditors will no longer be able to contact you or take legal action against you. This will give you time to catch up on your debts without worrying about your creditors.

-Partial debt cancellation

Another benefit of Bankruptcy is that it will discharge some of your debts Which means that you will no longer be legally responsible for paying those debts.

-Filing Bankruptcy gives you a clean slate. 

Bankruptcy can provide a fresh start that allows you to restructure your business and eliminate any debt weighing you down. With a fresh start, you can rebuild your business with a wiser and more experienced perspective.

What are the disadvantages of filing for Bankruptcy?

While there are several benefits of Bankruptcy, there are also some drawbacks that you should be aware of before you decide to file for Bankruptcy.

-One of the most significant disadvantages of Bankruptcy is that it will hurt your credit. This means that it will be more difficult for you to get loans in the future, and your interest rates will be higher.

-Another disadvantage of Bankruptcy is that it can be costly. You’ll need to pay court fees and attorney’s fees, and you may also need to pay for a credit counseling course.

-Finally, Bankruptcy can be stressful and time-consuming. The process can take several months or even years, and it will require you to disclose all of your financial information.

It would help if you spoke with an experienced Bankruptcy attorney regarding your consideration of filing for Bankruptcy. Doing so will ensure you make the right decision for yourself and your business.

What are some alternatives to Bankruptcy?

What is Bankruptcy

Alternatives to Bankruptcy

1. Debt Settlement
2. Debt Consolidation
3. Credit Counseling
4. Debt Management
5. Business Bankruptcy

Before you decide to file for Bankruptcy, you should explore all of your options. Some alternatives to Bankruptcy include:

-Working with a debt consolidation company:

A debt consolidation company can help you get a lower interest rate on your debts and make one monthly payment instead of several.

-Working with a credit counseling agency:

A credit counseling agency can help you develop a plan to get out of debt. The agency will also work with your creditors to try to get them to lower your interest rates or waive late fees.

-Negotiating with your creditors:

You can try to negotiate with your creditors yourself to get them to lower your interest rates or waive late fees.

-Selling assets:

If you have assets you can sell, such as a car or a house, you can use the money from the sale to pay off your debts.

Filing for Bankruptcy should be your last resort. You should only consider Bankruptcy if you’ve explored all of your other options and cannot get out of debt. Speak with a Bankruptcy attorney to assess your situation. An attorney can help you understand your rights and options and can help you make the best.

How to file for Bankruptcy

The filing process is best done with the help of a lawyer who understands the nitty-gritty of Bankruptcy law. If you want to file for Bankruptcy without a lawyer, you can. The process is not easy, and it’s best to know the law and the filing process before moving forward.

The first thing you need to do is gather all your financial documents. This includes tax returns, pay stubs, bank statements, asset information, and credit card statements. Once you have all your documents, you’ll need to complete some forms. Depending on the type of Bankruptcy you’re filing, you’ll need to complete different forms. For example, if you’re filing for Chapter 7, you’ll need to fill out a form called the “Voluntary Petition for Individuals Filing for Bankruptcy.”

After you’ve completed the necessary forms, you’ll need to file them with the Bankruptcy court in your district. Once your forms have been filed, you’ll need to attend a meeting of creditors. This meeting is also called a “341 hearing.” At the meeting, your creditors will have an opportunity to ask you questions about your Bankruptcy case.

Once you’ve completed the meeting of creditors, you’ll need to take a Bankruptcy course. This course is required by law and will teach you about personal finances and money management. After you’ve completed the course, you’ll receive a certificate of completion.

Once you’ve taken these steps, your case will be discharged, and you’ll be able to start fresh with a clean slate.

Which Debts Can’t Be Discharged in Bankruptcy?

Not all debts can be discharged in Bankruptcy. Some debts, such as child support, alimony, student loan debt, and taxes, are not dischargeable. Other types of debt, such as credit card debt and medical bills, can be discharged.

Bankruptcy: What Happens to Your Home, car, and other property.

If you’re facing foreclosure and considering Bankruptcy, you may be wondering what will happen to your home, car, and other properties. When you file for Bankruptcy, an automatic stay is put in place. This means that your creditors cannot attempt to collect your debt.

While the automatic stay offers some protection, it’s only temporary. If you want to keep your home, you’ll need to reaffirm your mortgage debt. This means that you’re agreeing to continue making payments on your mortgage. If you don’t reaffirm your mortgage debt, your lender can still foreclose on your home after your Bankruptcy case is discharged.

There are also the Homestead exemption laws of Florida Bankruptcy which allow Bankruptcy applicants to exempt an unlimited amount of the value in their home from creditors. The Florida Homestead exemption is a valuable asset protection tool that can help you keep your home in Bankruptcy.  The restriction to this law is that the property must have been used as a homestead for at least 1,215 days (or about 3.3 years) prior to the Bankruptcy filing.

Your car:  

You can keep your car as long as you’re current on your payments. If you’re behind on your payments, you may be able to obtain a “cram down” of the loan, which will lower the amount you owe to the value of the car. You can also reaffirm your car loan, which means that you’re agreeing to continue making payments on the loan.

Other property:  

You can keep other types of property, such as furniture, appliances, and clothing. However, there are limits on the value of the property you can keep. These limits are called “exemptions.” Each state has its own exemption laws, so you’ll need to check with your state to see what exemptions are available to you.

What is an automatic stay?

An automatic stay is an injunction that automatically goes into effect when you file for Bankruptcy. The automatic stay prohibits creditors from taking any action to collect debts from you.

The automatic stay is one of Bankruptcy’s most potent tools available to debtors. It immediately stops wage garnishment, foreclosure, repossession, evictions, and all other collection activities.

The automatic stay remains in effect until your Bankruptcy case is over or until the court lifts the stay.

What is a Bankruptcy discharge?

A Bankruptcy discharge is a court order that releases debtors from personal liability for certain debts and prohibits creditors from taking any action to collect those debts. A debtor who receives a discharge in Bankruptcy no longer has any legal obligation to pay any debts discharged. For instance, if a debtor is discharged from a credit card debt, the debtor no longer has any obligation to make payments on that debt, and the creditor cannot sue the debtor or take any other action to collect the debt. There are some exceptions to this rule, however, such as student loans and certain taxes.

How long does it take to complete the Bankruptcy Process?

The time it takes to get a discharge depends on the type of Bankruptcy you file. A Chapter 7 Bankruptcy typically takes about four to six months from the time you file your petition to the time you receive your discharge. 

A Chapter 13 Bankruptcy, on the other hand, can take much longer – anywhere from three to five years. This is because in a Chapter 13 Bankruptcy, you’re required to make payments on your debts over time, and once you’ve made all of the required payments, you’ll receive your discharge.

What is a reaffirmation agreement?

A reaffirmation agreement is an agreement between a debtor and a creditor that allows the debtor to keep a particular asset (such as a car or a home) and continue making payments on that asset even though the debtor is otherwise discharged in Bankruptcy.

For example, let’s say you have a car on which you’re still making payments, and you want to keep that car. You must sign a reaffirmation agreement with your lender to do so.

Reaffirmation agreements are not required; however, you should only enter one if you’re sure you can make the payments. If you default on a reaffirmation agreement, the creditor can take back the asset (such as your car) and sue you for any deficiency (the amount you owe on the loan minus the asset’s value).

It’s important to note that you can only reaffirm secured debts, such as a mortgage or car loan. You cannot reaffirm unsecured debts, such as credit card debt

How long does Bankruptcy stay on your credit report?

Bankruptcy will stay on your credit report for seven to ten years, depending on the type of Bankruptcy you file.

A Chapter 7 Bankruptcy will stay on your credit report for ten years. A Chapter 13 Bankruptcy will stay on your credit report for seven years.

While Bankruptcy will stay on your credit report for a significant period, it’s important to remember that it’s not the end of the world. You can still get credit after Bankruptcy and even rebuild your credit score over time.

Effect of Bankruptcy on Your Credit Report

Bankruptcy will harm your credit report and your credit score. However, the impact depends on several factors, such as the type of Bankruptcy you file, the other information on your credit report, and whether you take steps to rebuild your credit after Bankruptcy.

If you file a Chapter 7 Bankruptcy, for example, it will stay on your credit report for ten years. However, if you have other negative information on your credit report (such as late payments or collections), the Bankruptcy may not have as much of an impact.

On the other hand, if you take steps to rebuild your credit after Bankruptcy, such as getting a secured credit card and making all of your payments on time, you can improve your credit score.

Rebuilding Your Credit After Bankruptcy

While Bankruptcy will hurt your credit, it’s not the end of the world. You can still get credit after Bankruptcy and even rebuild your credit score over time.

There are a few things you can do to help rebuild your credit:

1. Get a secured credit card:

A secured credit card is a credit card that’s backed by a security deposit. For example, you may have to deposit $500 to get a $500 line of credit. The benefit of a secured credit card is that it can help you rebuild your credit because most secured cards report to the major credit bureaus.

2. Get a co-signer:

If you can’t get a credit card on your own, you may be able to get one by finding someone to co-sign for you. Remember that the co-signer will be responsible for the debt if you don’t make your payments on time.

3. Use a credit-builder loan:

A credit-builder loan is a type of loan designed to help people build their credit. With a credit-builder loan, you borrow a small amount of money and agree to make regular payments over a set period. Once you’ve made all your payments, you’ll get the money back (plus interest).

4. Become an authorized user:

If you know someone with good credit, you may be able to become an authorized user on their credit card. You’ll get your card linked to the account as an authorized user. You won’t be responsible for making any payments, but your activity will be reported to the credit bureaus.

5. Pay your bills on time:

One of the best things you can do to rebuild your credit is to make all your payments on time. Payment history is one of the most critical factors in your credit score, so by paying your bills on time, you can slowly but surely improve your credit score.

When you file your Bankruptcy with the DeVries Law Firm, you’ll get enrolled in a credit rebuilding program from 720creditscore.com. The program is designed to help you improve your credit score in the shortest possible time. 

Bankruptcy can be a fresh start.

While Bankruptcy will negatively affect your credit, it doesn’t mean you’ll never be able to get credit again. In fact, for some people, Bankruptcy can be a fresh start. If you’re struggling with unmanageable debt, Bankruptcy may give you the relief you need to get back on track.

If you’re considering Bankruptcy, be sure to talk to an experienced attorney to find out if it’s the right option for you.

Frequently asked questions about Bankruptcy.

How long does Bankruptcy stay on your credit report?

The length of time depends on the type of Bankruptcy you file. For example, a Chapter 7 Bankruptcy will stay on your credit report for ten years, while a Chapter 13 Bankruptcy will stay on your credit report for seven years.

What do you lose when you file for Bankruptcy?

When you file for Bankruptcy, you may lose some of your assets, such as your home or car. However, you may be able to keep some property if it’s exempt from Bankruptcy.

How long does it take to rebuild your credit after Bankruptcy?

It can take time to rebuild your credit after Bankruptcy, but it’s possible. You may be able to get a secured credit card, for example, and use it to help rebuild your credit score.

How much should you be in debt before filing for Bankruptcy?

You need to have no set amount of debt before filing for Bankruptcy. However, if your debts are so overwhelming that you can’t see a way to pay them off, then Bankruptcy may be an option.

 
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