Determining Which Chapter of Bankruptcy to File

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When a debtor is considering bankruptcy, he or she should research which option is possible and what chapter is needed based on his or her financial profile. Determining what type of bankruptcy to file may be easily discovered, but it is best to proceed with the knowledge that the applicant does not need to start over due to the wrong information or application.

When bankruptcy is the outcome of going through debt cleansing, the individual affected should determine if he or she is better off with a Chapter 7 or 13. This primarily depends on the income earned and the left over amounts also known as disposable income. When there is enough of this, the applicant should be able to pay his or her debts. However, the bankruptcy mean test may be used to discover if the individual is able to file for Chapter 7 and wipe most to all of his or her debts away. It is important to research and then hire an expert if possible, but the first step is obtaining information about the process.

Chapter 13 bankruptcy processes are for those that earn too much and have enough disposable income to pay some debts. These persons are able to reorganize their loans, liens and other debts so that they are more easily paid than originally incurred. However, if the job or career the individual has changes and the amount of income earned is not enough to remain in the Chapter 13 process, the person may have an option to file a Chapter 7 and wipe away most or all of his or her borrowed monies. Additionally, if the applicant is a business owner, he or she may have the Chapter 11 option to reorganize and pay off certain debts through liquidation or restructuring the company entirely so that it may continue and not close the doors.

Chapter 7 Explained

For the individual that has not earned enough with his or job or career to pay back debts, he or she may be eligible for Chapter 7 bankruptcy. This could include student loans depending on what paperwork is filed, and if the right forms are supplied to the administration. The bankruptcy mean test may be used to ensure the person has sufficiently low enough disposable income, but he or she may pass the test without any hurdles when the disposable income remaining after bills is not nearly enough to start repaying loans, liens and other debts. Through this type of bankruptcy, it is possible to wipe out all monies borrowed in the personís lifetime. The process usually takes three to four months.

Small and Privately Owned Businesses

For those that earn too much for a Chapter 7, a small business or private company owner may file Chapter 13. This is for those with enough disposable income to pay off some debts and when a reorganization of a company is needed to ensure it survives bankruptcy. This is similar to with different than a Chapter 11 for businesses. Chapter 13 reorganizes debts so the individual or business owner may repay lenders through a payment plan that is more economic and reasonable than previous arrangements. This situation with Chapter 13 could last three to five years with most loaned monies repaid in the timeframe.

Larger Businesses and Bankruptcy

When a company cannot resolve its debts, it is possible to file for Chapter 11 and reorganize the entire structure so that the biggest and most important monies are paid back through a liquidation of certain assets. This may entail a much smaller staff once the bankruptcy process has completed, but it may save the company from financial ruin. When the restructured and reorganized business has completed Chapter 11 bankruptcy, the newest employees may have been laid off so that only the most essential workers remain. This permits the owner to keep the most vital processes going and cutting out the less necessary staff.

Bankruptcy Type and the Lawyer

Choosing the type of bankruptcy that is used to remove or ensure debts are paid is important, and there are usually few options available to the individual or business owner. It is generally important to contact and hire a lawyer to determine the correct path. Legal representation may protect the rights of the individual or company and ensure that paperwork is filled out accordingly with few mistakes or errors. After the procedure has completed, the person may resume his or her life with fewer complications.


Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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