Filing for bankruptcy can be a difficult decision, but it can also provide a fresh start and relief from overwhelming debt.
There are different types of bankruptcy, each with its own benefits and drawbacks.
Below are different types of bankruptcy and how to decide which one is right for you.
Chapter 7 Bankruptcy
Also known as “liquidation” bankruptcy, is the most common form of bankruptcy in the United States. It is designed for individuals and businesses with little or no income and few assets.
In a Chapter 7 bankruptcy, a trustee is appointed to sell off non-exempt assets to pay off creditors. Many unsecured debts, such as credit card debt and medical bills, can be discharged in a Chapter 7 bankruptcy.
Pros:
- Quick discharge of most unsecured debts.
- Most people keep their property.
- No repayment plan required.
- Creditors must stop collections efforts immediately.
Cons:
- May not be able to keep all assets.
- Eligibility is based on income and assets.
- Credit score will be negatively impacted.
- Some debts, such as student loans and tax debts, cannot be discharged.
Chapter 13 Bankruptcy
Designed for individuals with a regular income who have enough income to repay some or all of their debts over time.
In a Chapter 13 bankruptcy, a repayment plan is created to pay off creditors over a period of three to five years. After the repayment plan is completed, any remaining unsecured debts may be discharged.
Pros:
- Can keep all assets.
- May be able to reduce or eliminate some debts.
- Creditors must stop collections efforts immediately.
- Credit score may be less negatively impacted than with Chapter 7 bankruptcy.
Cons:
- Requires a repayment plan.
- Eligibility is based on income.
- Takes longer to complete than Chapter 7 bankruptcy.
- Some debts, such as student loans and tax debts, cannot be discharged.
Chapter 11 Bankruptcy
Designed for businesses and individuals with substantial assets and income. It allows the debtor to reorganize their debts and create a plan to pay off creditors over time.
Chapter 11 bankruptcy can be a complex and inexpensive process, and is typically used by businesses and high net worth individuals.
Pros:
- Can keep all assets.
- Allows for reorganization and restructuring of debts.
- Creditors must stop collections efforts immediately.
- May be able to reduce or eliminate some debts.
Cons:
- Complex and expensive process.
- Requires ongoing court oversight and approval.
- May take a long time to complete.
- Credit score will be negatively impacted.
Deciding which type of bankruptcy is right for you depends on your individual circumstances. If you have little or no income and few assets, Chapter 7 bankruptcy may be the best option.
If you have a regular income and want to repay some or all of your debts over time, Chapter 13 bankruptcy may be a better option.
If you are a business owner or have substantial assets and income, Chapter 11 bankruptcy may be the best choice. It’s important to consult with a bankruptcy attorney to determine which option is right for you and to navigate the bankruptcy process.
If you are considering filing for bankruptcy in Denver, Colorado Springs, Fort Collins, Boulder, Loveland or any nearby area, call us today at (303) 623-4357 to schedule an appointment.