Getting a relief from a part or the whole of a heavy debt can be the only option to save your business in most cases. If you’re new to the whole thing, in this article, I will explain the 5 types of bankruptcy you need to know about.
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What is Bankruptcy
Bankruptcy is a legal process done in a bankruptcy court to get relief from a debt as a business or a personality. While it will effectively help you to eliminate your debts, a bankruptcy declaration can affect your business or personality for over a long period of time.
Before going into the consequences and advantages of it, below are some types of bankruptcy you should consider.
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Types of Bankruptcy
- Chapter 7 bankruptcy; aka liquidation or straight bankruptcy, this declaration is filed by individuals who can no longer catch up with their bills. In this scenario, the court appoints a trustee to oversee the sale of some of your assets to clear up your debt.
- Chapter 13 bankruptcy; in this case, you are expected to have a source of income through which the debt is cleared off in a structured way. The court reviews your monthly income, places restrictions on your budget, and orders that a specific amount should be paid to your creditors every month until the whole debt is cleared.
- Chapter 11 bankruptcy; mostly filed by real estates agents, chapter 11 bankruptcy allows a business to operate while paying off its debts. In this case, you as a business, clarify how your business will be organized in all areas in order to allow an easy and timely payment of your debt. This clarification is either accepted or declined by both the court and your creditors.
- Chapter 12 bankruptcy; if you are a homeowner, a framer, a fisherman, or a small business in debt and you want to avoid selling your asset, this is for you. Chapter 12 bankruptcy is mode flexible. It has a higher debt limit especially if your debt is huge and you have other means of repaying other than selling your properties.
- Chapter 15 and 9 bankruptcy; not that these are two different declarations. The chapter 15 bankruptcy deals with foregn debts. While, on the other hand, chapter 9 bankruptcy enables towns, schools, or cities to reorganize for debt payment.