It’s not always easy. You might have taken on debt above your monthly income. Are you now wondering how to restore your financial order?
For small-business owners and consumers alike, knowing when to file for bankruptcy can be a valuable skill. It’s a smart financial decision that will help you determine whether it is right for you.
People with too many debts can start bankruptcy. They will need to sign a federal petition which reviews their financial obligations and debts. Then, creditors can request that they work with them to settle their debt with any remaining assets.
What Types of Bankruptcy Are There?
Individual consumers and business owners can accumulate too much debt. There are several types of bankruptcy available to help them. These are the chapters of the U.S. bankruptcy law that you should consider if you’re unable to repay your debts.
Chapter 7: Individual Liquidation
Chapter 7 is the preferred method for most people who want to file bankruptcy. A federal court will appoint a trustee to assist with the sale of property to repay creditors or lenders. You can claim exempt property, such as your car, pension, and household equity.
Chapter 11. Reorganization Bankruptcy
For small-business owners, Chapter 11 bankruptcy may be an option to reorganize assets, debts and affairs. An examiner will help you navigate the process if these factors are more than $5 million.
This is a good step for business owners as it allows the company’s operations to continue while restructuring takes place. If the debtor isn’t willing to accept the idea, creditors may also suggest Chapter 11 bankruptcy.
Chapter 13. Asset Maintenance and Repayment Plan
Individuals who file Chapter 13 bankruptcy can keep all of their assets, but they must repay all their debts within three-five years after a court approves their plan. If you make regular payments, there is no need to liquidate any assets. People who don’t get approval for bankruptcy are usually workers without reliable income sources.
When can I file for bankruptcy as an individual
Negotiate with creditors or debtors prior to filing bankruptcy. If they can find a way to pay you long-term and ultimately repay your debts more efficiently, they’ll still be able to get their money back.
Sometimes debtors will negotiate. If they don’t see a viable route forward due to your financial situation or history, they might not.
If negotiations are impossible, or you’re close to losing your house or other assets because you cannot make the monthly payments on time, you may need to file for bankruptcy. To obtain the correct type of bankruptcy certificate, you should first attend credit counseling.
During this session, a counselor will evaluate your assets and determine the best solution to your needs. Contact federal credit counseling agencies to find these professionals.
Some people worry that the value of your existing assets or income won’t be sufficient to pay your debts. If this is the case, your senior credit facility will set up a financial solvency plan together with your credit counsellor to pay off any outstanding debts. Your minority lenders will work out any necessary modifications and follow the senior-most decisions if they create it in good faith .
When to file for bankruptcy as a business
It could be time to file bankruptcy if debtors refuse to negotiate with small business owners about their loans. This would usually mean that a Chapter 11 case is filed. However, there are some benefits for small business owners.
If your creditors or debtors are not willing to meet to negotiate new terms, this type bankruptcy could be a benefit. Instead, everyone would be brought to the table by the federal case to discuss possible options, such as extended payments terms for real estate, equipment, and manufacturing loans.
Small-business owners do not have to immediately liquidate assets or companies to pay off the debt. Because Chapter 11 prioritizes repayment plans approved in federal courts, small-business owners can keep their businesses open and functional. Once both parties agree on terms, the trustee will act as the facilitator and monitor ongoing payments.
Many small-business owners avoid filing bankruptcy due to the lengthy and expensive process. The court’s schedule and the ease with which debtors agree on payment plans will determine how much you pay for filing and attorney costs.
In addition, initial payments will be required within the first few months. It can be difficult to pay legal fees and continue running your business.
How To File for Bankruptcy
There are many steps involved in filing for bankruptcy. Before making any final decisions, you should first familiarize yourself with the process.
1. Take a look at your options
You might not need bankruptcy depending on your circumstances. You can get relief by paying off student loans or unpaid taxes while you consider settlement. To make the best decision, you’ll need to know your financial information and credit reports paperwork.
2. Choose the type of bankruptcy
If bankruptcy is right for your business or you, you will need to choose between Chapters 7, 11, and 13. First, narrow down your options by choosing between individual bankruptcy and business bankruptcy. You can then decide on your assets’ worth, outstanding debt and income.
3. Choose an attorney
The American Bar Association as well as state associations have a database of lawyers who can help people file for bankruptcy. If you don’t have the funds to pay for legal representation but still want it, legal aid clinics or free services may be available.
You have the option of representing yourself. This is known as going pro se. You don’t have attorney fees so you can save most of the filing costs. But, you might not get the debt relief you seek. An half of pro-se cases led to debt discharge, whereas 93.9% of represented cases did.
4. Complete a Credit Counseling Course
Every person filing bankruptcy of any kind will need to complete a credit counseling program. It allows people to evaluate their options and determine which course is best for them, regardless of whether they are filing for bankruptcy or any other type of debt relief. You’ll need to retake your class if your deadline is more than 180 calendar days from the date of your official filing.
5. Complete your Legal and Counseling Forms
After meeting with credit counsellors and finishing your course, you will have to complete all required forms. There are many steps involved in any bankruptcy. Be prepared to take your time. The forms will include information about your financial history, including statements and fees. If you decide to have representation, your lawyer can assist.
6. Filing forms and paying fees
Many fees are associated with the paperwork. Filing fees, administrative work and surcharges apply to trustees who will manage the arrangements for payment with your creditors. Some people may be able to get these fees waived if their income falls below the poverty level, which is determined by a federal Court.
7. Negotiate with Your Creditors
Your creditors will meet you after you have paid your fees and filed all paperwork. They will examine your situation and recommend the best way to repay your debts. Because the meeting is under oath and legally binding, all agreements reached will be binding.
8. Debtor Education Classes
You must complete post-filing education classes if your lenders discharge your debts. You will be able to demonstrate that you have learned better financial management skills based on the results of your lessons and tests. You will need to pay the tuition fee to receive your final bankruptcy certificate.
After Filing, What Does Life Look Like?
What will your life be like after bankruptcy? It depends on your situation and how you file.
Chapter 7 bankruptcies will stay on credit records until the debt is paid off. Chapter 13 bankruptcy is only valid for seven years.
Your credit score will also be affected, regardless of how you file. If you need money to expand your company or pay for an emergency, this could make it more difficult to get funds from investors or insurance companies.
It is possible to be left with significant debt if you are facing bankruptcy. There are restrictions on the number of times that a bankruptcy chapter can be filed.
No Counting Towards Bankruptcy
If you owe money but don’t meet the criteria for bankruptcy, you might not be required to file. Here are a few debts that don’t count for bankruptcy filings by federal courts:
Outstanding utility bills
Credit card debt
Past-due rent bills
You can reach out to credit counselors or legal representation to determine if your debt is a good candidate for bankruptcy.
How to File for Bankruptcy
Financial management requires that you understand when bankruptcy can be filed. This could help you make your financial future brighter. Talk to an expert about whether it’s the best option to manage your credit while still maintaining your personal and professional life.