Bankruptcy is a legal status that means that an entity can’t settle their debt. It’s about paying your debts using assets. It is the last resort and can damage your credit record significantly.
For this reason it’s vital to make sure that one only files once they have explored all alternatives. The method that is used is dependent on the amount assets one owns and whether or not a plan can be created to repay. Not everyone qualifies and it’s important to keep in mind that a means test will be conducted.
It’s also vital to be prepared for the process and for ways to recover post-bankruptcy.
Types of bankruptcies:
Chapter 7 – This involves the sale of assets. A trustee is appointed by the court. This form of bankruptcy means that not all debt will be wiped out and is usually used by people who have no way to pay their debts off. Typically regarded as straight bankruptcy, it can take up to six months to complete, following which, discharge is achieved.
Chapter 13 – If you still have income left at the end of the month, this filing option may be best. A repayment plan will be structured for you by a trustee. It can be used by individuals and organisations. The process takes three to five years to complete.
Chapter 11 – This is mostly used by businesses. It’s an expensive but convenient way for companies to reorganise their debt. A benefit of this option is that the business gets an automatic stay, so litigation cannot continue throughout the process.
How to recover from the various types of bankruptcies:
- Have a plan and behave responsibly in terms of handling your finances
- Work on steadily rebuilding your credit. Keep in mind that bankruptcy remains a blemish on your credit report for seven to 10 years, so you need to put the work in to improve your standing.
- Monitor your credit score regularly