Finding yourself in a position whereby you are unable to pay for debt isn’t the best place to be. There are numerous solutions for settling debt but there are occasionally times when even these measures aren’t enough. Bankruptcy has given many people and organisations a much-needed life-line.
Essentially a method used to settle debts if one cannot afford to, bankruptcy offers relief by creating alternative solutions to entities looking to pay debts off. It’s available to both individuals and companies.
There are different versions, all designed to suit specific needs.
What are the most common types of bankruptcy?
Chapter 7:
This remains the common form and may eliminate unsecured debts. It may be used to resolve civil judgements or loan amounts owed. Even though it is regarded as “straight bankruptcy” because it is generally based on the sale of assets in order to pay debts off, it may also help applicants to retain some assets, such as cars and houses.
This process takes a few months to complete and the filing may remain on the credit report of an individual or business for up to 10 years. This also means that credit scores are temporarily lowered.
Not everyone is eligible and applicants are subjected to a means test.
Chapter 13:
This filing is also quite popular and differs from a Chapter 7 in terms of approach, by enabling applicants to reorganise their debt. It enables one to repay their debt over a three to five year period. It is also best for those with a steady form of income who are facing temporary financial problems. After filing, creditors are prohibited from harassing individuals and all secured debts covered are discharged.
Chapter 11:
Mainly used by entities, this is another of the most common types of bankruptcy. It enables businesses to continue their operations while their debts are settled.
Bankruptcy should be regarded as a last resort and it’s also essential to consult an attorney prior to making any decisions.
