Whether you’re a struggling business owner, a family facing unexpected medical bills or other expenses, or an individual regretting some of the financial decisions you have made, bankruptcy might be the answer for you. Bankruptcy can offer a lifeline to those drowning in debts from which they may never recover.
The United States Bankruptcy Code includes six different types of bankruptcy: Chapters 7, 9, 11, 12, 13, and 15. Each offers different benefits and has its own requirements. Choosing the right bankruptcy chapter for you is essential for your financial success. Going down the wrong path of bankruptcy can cause you to miss out on the benefits you are entitled to receive or to be unsuccessful in completing your bankruptcy. The best way to determine which type is right for you is to meet with a seasoned bankruptcy attorney who can advise you on the best route to take.
Chapter 7 and Chapter 13 are by far the most common types of bankruptcy options. Chapter 7 bankruptcy filers must meet certain requirements, but most individuals and married couples qualify to file one or both chapters. Chapter 11 is common among business owners and sometimes individuals. However, Chapters 9, 12, and 15 are specifically designed to help municipalities, family-owned farms or fishing operations, and entities across multiple countries.
Once you file for bankruptcy, your creditors must stop contacting you; they can’t call you or send you letters or emails. They also must immediately stop all collection efforts, including:
- Wage garnishment
- Bank levies
- Vehicle or other asset repossession
If they continue to contact you or make collection efforts, they can face serious fines and penalties for each occurrence.
The ultimate goal or benefit of any type of bankruptcy is to have debts discharged or rearranged so that they become more manageable to pay. However, debtors should understand that not all debts qualify for a bankruptcy discharge, such as liens that are attached to a property or legal obligations like child support.
Chapter 7 Bankruptcy
Also known as liquidation bankruptcy, Chapter 7 requires that the debtor give up most of their assets so their creditors can be paid. However, the good news is that federal and Florida bankruptcy laws allow generous exceptions and only require debtors to relinquish assets above a certain value. Most Chapter 7 bankruptcy filers can keep all or the majority of their assets, including motor vehicles, clothing, furniture, pensions, household goods, and some home equity. If they do have assets that exceed the applicable exemptions, the bankruptcy trustee can take them and sell them, using the proceeds to pay their creditors for the debts they owe.
Chapter 7 Benefits & Disadvantages
Chapter 7 is typically the quickest form of bankruptcy relief. Depending on the local bankruptcy court, Chapter 7 bankruptcy can be filed and discharged in as few as four months. There’s no repayment plan involved, and unless complications or creditors are fighting the discharge of debts (which rarely happens), these cases are usually relatively quick and easy.
Despite some circulating myths, you don’t necessarily have to give up your home or vehicle to file Chapter 7. Although Chapter 7 might be the best option for some, it’s not a requirement. Reaffirmation is a tool that allows a specific secured debt to be kept by the debtor. It lets a debtor retain, for instance, a home or car that may otherwise have to be sold but still experience the other benefits of bankruptcy.
Chapter 7 does have some drawbacks. For instance, as previously mentioned, you might have to sell some of your assets. You can also only file this type of bankruptcy once every eight years. In addition, you must meet specific financial qualifications and pass a means test. For example, suppose you have too much disposable income. In that case, the bankruptcy court can make you switch to a Chapter 13 bankruptcy instead.
Chapter 13 Bankruptcy
Also called a wage earner’s plan, Chapter 13 rearranges debts and allows debtors to keep their property while repaying their debts over a period of three to five years. Their monthly repayments are submitted to a trustee who distributes the funds to appropriate creditors. How much they repay depends on how long their plan is and their income. In addition, some Chapter 13 debtors may not need to pay off all of their debts to receive a bankruptcy discharge.
Chapter 13 Benefits & Disadvantages
This type of bankruptcy can save homes from foreclosure and allows the filer to get caught up on their mortgage payments over time. It also gives debtors more time to pay off other debts. During the repayment period, debtors don’t have to deal with creditor harassment, as creditors must go through the trustee to communicate.
The disadvantages of Chapter 13 are that it takes much longer than Chapter 7 to receive a discharge, which won’t happen until the repayment plan is satisfied. Also, some or all of the debts must be repaid.
Chapter 11 Bankruptcy
Chapter 11 bankruptcies are best for business corporations or partnerships but can also be used by sole proprietors. It’s also known as a reorganizing bankruptcy, as it allows the business to use a repayment plan to get caught up on their payments.
Chapter 11 Benefits & Disadvantages
With Chapter 11, the business can keep operating while repaying its debts, which stands to benefit the business, its owners, and its creditors. On the other hand, a Chapter 11 bankruptcy can be complex, expensive, and take quite a while to complete. Creditors must also vote for the approval of the proposed repayment plan instead of a trustee authorizing it.
Questions About What Type of Bankruptcy is Right for You?
At Osenton Law, P.A., our lead attorney O. Reginald “Reggie” Osenton, is highly experienced in both federal and Florida bankruptcy laws. With over three decades of helping bankruptcy debtors, he can help you through the process while ensuring you receive all the benefits from it as well. Our law office provides no-obligation bankruptcy consultations so you can determine if and what type of bankruptcy is right for you. Contact us online to book your free consultation!