Did you know that in 2024, the number of bankruptcy cases filed in the United States increased by approximately 16.2% compared to the previous year? The statistic includes bankruptcies for both individuals and businesses.
Bankruptcy can be stressful, often associated with financial distress and personal challenges, but it can also provide a fresh start for individuals and businesses facing overwhelming financial difficulties.
Understanding the different types of bankruptcy options available, including the specific types of bankruptcies in Texas, is necessary for making informed decisions about managing financial issues. Bankruptcy may be affected by local state laws since each state has a unique list of exempt assets.
Each option offers a different way toward financial relief, whether you’re looking for a quick debt discharge or an agreeable payment plan.
This article will look at the various types of bankruptcy options and how they can affect you.
Understanding Chapter 7 Bankruptcy
Understanding Chapter 7 bankruptcy is important for improving your financial situation when you feel overwhelmed by debt. This option can help eliminate most of your unsecured debts, such as credit card bills and medical expenses, giving you a fresh start.
To qualify for Chapter 7 bankruptcy, you must pass a means test that checks your income and expenses. The means test will compare your income with the median income in the state. If you pass the test, the process is usually quick, taking about three to six months.
According to The Preston Law Firm, certain assets of yours might be liquidated for the benefit of your creditors, including second cars, luxury goods, and anything that has value.
Keep in mind that a Chapter 7 bankruptcy will remain on your credit report for 10 years, making it difficult to obtain credit during that time.
Handling Chapter 13 Bankruptcy
Unlike the liquidation of assets in a Chapter 7 bankruptcy, a Chapter 13 bankruptcy allows individuals to restructure their debts into a court-approved repayment plan. The repayment plan typically lasts from 3 to 5 years. Chapter 13 bankruptcy lets you keep your assets, such as a home or car, as long as you stay current on payments.
To be eligible for Chapter 13, you must have a consistent income to make monthly payments compared to a Chapter 7 bankruptcy, which is intended for those with little to no disposable income.
In a Chapter 13 bankruptcy, you are obligated to repay a portion of your debts based on your income and financial situation.
Exploring Chapter 11 Bankruptcy
Most people filing for bankruptcy choose Chapter 7 or Chapter 13. Meanwhile, Chapter 11 is mainly designed for businesses to reorganize their debt.
This type of bankruptcy allows you to continue running your business while creating a repayment plan for your creditors. With Chapter 11, you can restructure debts, renegotiate contracts, and sometimes even eliminate certain debts.
A Chapter 11 bankruptcy is important for generating income and maintaining jobs. The process can be complicated and require a lot of time and resources.
Don’t hesitate to consult a bankruptcy attorney who can guide you through Chapter 11 and help you make informed decisions during the reorganization process.
Examining Other Bankruptcy Options
After learning about the different types of bankruptcy options, you can now decide which one best suits your financial situation and long-term goals.
Chapter 7 allows for a quicker debt discharge by selling nonexempt assets. Chapter 13 sets up a 3-to-5-year payment plan, letting you keep your property while making monthly payments. If you’re a small business owner or self-employed, Chapter 12 is another type of bankruptcy option that is designed for family farmers and fishermen.
Each option has different requirements and effects, so evaluating your finances and future goals is important. Consulting a bankruptcy attorney can help you make the best decision.
Weighing the Pros and Cons of Bankruptcy Types
Evaluating your financial situation will help you determine the bankruptcy option that best fits your circumstances.
Investing in a bankruptcy attorney will help guarantee that you understand your rights and obligations when filing for bankruptcy. Your lawyer will help you assess your situation and check if you are eligible to file for bankruptcy.
A skilled bankruptcy lawyer will provide objective legal advice and help you know what steps to take for filing for bankruptcy. They can explain the advantages and disadvantages of each bankruptcy type, including the potential consequences and benefits.