How do bankruptcies work, and what do they require from you? Here’s what you need to know about the process to see whether its right for you.
Debt can be a crushing weight on your shoulders. In a business, it can be even worse because you can’t meet all of your obligations. You may not be able to make payroll or you owe your vendors.
When you’re looking at your best options personally or for your business, you may decide that bankruptcy is the only option. It can provide a fresh financial start personally.
From a business standpoint, you can restructure your debt and get some relief financially.
Read on to find out how bankruptcies work and the types of bankruptcies.
Types of Bankruptcies
There are two common types of bankruptcies, Chapter 7 and Chapter 13.
Chapter 7 liquidates your debts, giving you a fresh start. The key here is that you have to show that you don’t have the income to pay your debts.
Keep in mind that all debts aren’t discharged in bankruptcy. Student loans aren’t discharged in a bankruptcy proceeding. However, credit cards and medical bills are.
Chapter 13 takes your debt and restructures it in a way that allows you to pay it back over time. You don’t discharge your debts, but you fall under a new payment plan that’s overseen by the courts.
Chapter 13 is an option if you have some disposable income that you can apply to your debts.
You can find out more about bankruptcy and other forms of reorganization.
How Bankruptcies Work
Did you decide that bankruptcy is the best option for you? You’ll need to hire a bankruptcy attorney to handle your case.
There is a lot of paperwork that needs to be filled out and filed. You’ll also need to prove your financial situation. Give your attorney your tax returns, income statements, bills, and other loan documents.
Before you file your case with the courts, you’re required to go through credit counseling if you go through Chapter 7 bankruptcy.
When you file your case, the court will schedule a meeting of your creditors. This is their opportunity to object to your bankruptcy proceeding.
You are required to show up to this meeting. Your paperwork will be reviewed and you’ll be asked questions by a trustee assigned to your case.
In about 2-3 months after this meeting, your case will be discharged. Your debts will officially be discharged or restructured.
A bankruptcy will be a matter of public record since it’s a court proceeding. It will stay on your record for 10 years. It will also stay on your credit report, too.
When you have your debts discharged, expect your credit score to take a big hit. That will diminish over time until it falls off of your report.
Bankruptcy is a Viable Option to Handle Debt
There is a stigma attached to filing bankruptcy. However, it is a viable option to restructure your debts and pay them back or get a fresh start.
You want to make sure that you know how bankruptcies before proceeding. Consult with a bankruptcy attorney who can guide you through the process. You want to put yourself in the best position to have a good outcome and have your debts handled.
You can then move on with your business and your life.