When you’re considering bankruptcy, it most certainly means that you’ve reached a critical point. You are in debt and don’t know how to handle it anymore, and getting out of debt is not a possibility at the moment without it having a huge impact on the quality of your life. So, bankruptcy may be on your mind as a result.
But before you file for bankruptcy, it’s important to know what you’re getting into. It’s normal to feel scared and want the whole debt situation to be over, but bankruptcy is not a decision you take on a whim. Doing some research is necessary beforehand.
You may have not been aware of the fact that there are multiple bankruptcy types. Which one should you file for? Here are the top bankruptcy types that people go for today.
1. Chapter 9 Bankruptcy
Under Chapter 9 bankruptcy, debt can be reorganized. This bankruptcy type allows a county, city, or school district to restructure debt, then work on a plan on how to deal with it without having to put assets up for sale.
Parties who opt for Chapter 9 bankruptcy will be able to lower the interest rate on their debt, refinance, extend the repayment term, or reduce the principal debt amount.
This is an ideal bankruptcy type for all municipalities that have financial issues. As the municipality works on reorganizing the debt, all collections are stopped until the reorganization is over. However, the problem with it is that it does not get easily approved. It’s also quite pricey.
2. Chapter 7 Bankruptcy
Chapter 7 bankruptcy is perhaps the type you heard of the most. It is usually considered by businesses or individuals with financial debt who are able to pass the means test. Chapter 7 is also known as straight bankruptcy or liquidation.
With this bankruptcy type, businesses or individuals can walk away from many debts. Everything happens very quickly, which is what makes Chapter 7 so great.
Your assets will be sold to pay off the creditors while a court-appointed trustee oversees the process. If you have remaining unsecured debt, it will be erased most times. But not all debts can be discharged. Some debts, like taxes and student loans, cannot be erased through bankruptcy.
Unfortunately, Chapter 7 can also lead to non-exempt asset loss.
3. Chapter 12 Bankruptcy
Family fishermen and farmers with regular income are the ones who usually opt for Chapter 12 bankruptcy. This bankruptcy type lets them reorganize debt. If the individuals have large debts but they are not eligible for Chapter 13, Chapter 12 is a more suitable option.
Basically, all the debts are paid off with a repayment plan. The plan can be spread out over three years. If the court finds it necessary, the period can also be extended to five years.
Once the reorganization plan allows the family fishermen and farmers to complete all payments, the debt will be discharged. It’s important to know that there are debts that cannot be discharged under Chapter 12, such as alimony or child support.
4. Chapter 11 Bankruptcy
When you want to restructure your debt, Chapter 11 bankruptcy is your friend. This method is considered by people and businesses that have debt and want to restructure it. Assets are retained while the filer works on a plan to pay off some of the debt. During the bankruptcy, the businesses that filed for Chapter 11 will be able to still operate.
The downside of Chapter 11 is that it’s pretty expensive and difficult. So, only wealthy people and businesses will usually be able to handle it.
5. Chapter 13 Bankruptcy
Just like Chapter 12, Chapter 13 bankruptcy allows people to reorganize their debt. This type is ideal for people who have a regular income. The debts will be paid off partially in some cases, while in others they will be paid back fully with interest.
In order for the filer to qualify for Chapter 13, he or she must have unsecured debt of less than $394,725 and secured debts of less than $1,184,200. You will have a 3-5-year period to pay off the debt.
The Bottom Line
Bankruptcies are filed every year, and in California alone, there have been 1,732 bankruptcies filed by businesses in 2022. If you ever need to file for bankruptcy in the state, you must know what type suits you the most. Hiring Davis bankruptcy lawyers will allow you to get advice and proceed with the right type of bankruptcy.