Which Kind of Bankruptcy Should You File?

Let’s face it. There’s a lot to know about bankruptcy. Whether you’re thinking of filing or have already made the decision to file, the sheer amount of information out there can be overwhelming to even the calmest individual.

Filing for the right form of bankruptcy is the first step to achieving a favorable outcome. Let’s go over the most common forms of bankruptcy as well as the advantages and disadvantages of each type.

Chapter 7

This is a form of personal bankruptcy and one of the more common options. Chapter 7 bankruptcy is a form of liquidation, which discharges some of your unsecured debts. It does not discharge everything you owe, and some types of debts are ineligible for discharge including alimony and student loans. You may have to relinquish some assets to pay back creditors.

This straight form of bankruptcy is available to individuals who pass the means test. The means test compares your income with the median income in your state of residence. Thus, it is typically a better option for people who cannot pay back a large portion of their debts based on their average monthly income. Compared to Chapter 13 bankruptcy, this form is much faster and does not require an extended payment plan.

Chapter 11

Chapter 11 bankruptcy is available to both businesses and individuals. With this type of bankruptcy, your debts are restructured so you can pay them back over time. Businesses can remain in operation while in the midst of a Chapter 11 bankruptcy.

The repayment plan is subject to the approval of the creditors and the bankruptcy court. Businesses can also create a plan for profitability regarding their future revenue after filing. This is a more expensive and time-consuming form of bankruptcy, but can be helpful to organizations that wish to remain in operation.

Chapter 12

You don’t hear of Chapter 12 bankruptcy very often and may not even be aware that it exists. This form of bankruptcy is designed for family fisherman and farmers. The idea is to allow these individuals to pay back their debts over time with future income. It’s actually quite similar to Chapter 13 bankruptcy (see below) in that it reorganizes debt.

Family fisherman and farmers who file for Chapter 12 bankruptcy agree to repay their debts to creditors for a period of 3 to 5 years. 5 years is the maximum amount of time given.

Chapter 13

With Chapter 13 bankruptcy, a payment plan is used to help individuals pay back their debts to creditors. This payment plan, established by the court, typically lasts 3 to 5 years. It is often used by individuals who want to pay back some of their debts and keep their homes.

It is typically a better option for people with a higher disposable income as your future income is used to pay back debts. However, it is possible to be deemed ineligible for Chapter 13. If your unsecured debts are above $394,725 or your secured debts total over $1,184,200, you are not eligible for this type of bankruptcy.

You shouldn’t have to go through the process of filing for bankruptcy alone. Discuss the options available to you and how to begin with an experienced bankruptcy attorney. At Tyler, Bartl & Ramsdell, P.L.C., we offer assistance to clients seeking relief from debt. Call us today at (703) 549-5000 to schedule a free consultation or visit us on the web!