It happens to the best of us. Unforeseen financial difficulties.
If they become severe enough, sometimes bankruptcy is the only viable option. But the first thing you need to know about bankruptcy is that it no longer carries the stigma it once did.
Ever since the 2008 crash, the number of bankruptcies has skyrocketed as the less than stellar recovery put many people and businesses in the untenable condition of crushing debt.
Even President Donald Trump took several of his businesses through bankruptcy.
As you may already know, bankruptcy comes in several forms, and you can choose the one that best suits your needs.
If you need to file personal bankruptcy, you can choose between Chapter 7 and Chapter 13. If your business needs to file bankruptcy, Chapter 13 also often works, but you can also choose Chapter 11 which is strictly for businesses.
Finding a good bankruptcy attorney likewise is not all that difficult.
Chapter 7 is the most common form of bankruptcy for individuals. This is the typical “fresh start” type of bankruptcy because not only do you get to keep virtually all of your assets, including household furnishings, vehicles, retirement savings, jewelry, etc., a typical Chapter 7 bankruptcy lasts only 3–4 months.
You may have to go to court only once. You will, however, need to fall within your state’s income guidelines in order to qualify for Chapter 7.
One of the biggest advantages Chapter 7 offers is that it’s a discharge proceeding. This means that at the end of your bankruptcy period, the Bankruptcy Court will discharge virtually all of your consumer debt, including your credit card debt.
Chapter 7 is not, however, your best option if you own a home and are trying to save it from foreclosure. If that is your main concern, Chapter 13 likely will work better for you.
Unlike Chapter 7, Chapter 13 is a reorganization procedure. What this means is that instead of discharging your debts, the Court gives you the opportunity to renegotiate your debts and their terms with your various creditors, including your mortgage lender.
These negotiations can often lead to substantial reductions in your outstanding loan balances, plus substantially better interest rates and monthly payment amounts.
Once you finish your renegotiations, you then construct a repayment plan that the Court must approve before it can go into effect.
Once it does, you then have a reasonably long period, usually 3–5 years, to work your plan and get yourself back on a stronger financial footing.
One thing you’ll especially appreciate about both Chapter 7 and Chapter 13 bankruptcies is that they entail an automatic stay period once you file.
None of your creditors can harass you for debt repayment during this period, nor can your mortgage lender take any foreclosure action against you. If (s)he has already started foreclosure proceedings against you prior to your bankruptcy, your filing with stop those proceedings dead in their tracks.
And remember, your small business can likely file Chapter 13 just as easily as you can personally.
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Chapter 11 bankruptcy offers large viable corporations the chance to right themselves financially.
In 2018 alone, the following well-known retailers filed for Chapter 11 bankruptcy protection:
- Toys R Us
- Mattress Firm
- National Stores
- Nine West
- Bon-Ton Stores
- Kiko USA
In the past, even such giants as General Motors have availed themselves of the protection Chapter 11 offers.
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Life After Bankruptcy
Yes, there is life after bankruptcy, and it can be a good one.
For instance, your credit score likely will show substantial improvement within a year after you get out of bankruptcy. It may even be higher than it was right before you filed for bankruptcy.
You will also be able to reestablish credit reasonably soon after bankruptcy.
Admittedly, the first credit card you obtain likely will need to be a prepaid one or one with a low credit limit and/or a higher than normal interest rate.
But after a few months of using it judiciously and paying off the entire balance each month, you probably will discover that other credit card companies will give you a more advantageous one. In fact, they may even solicit you to do so.
All in all, bankruptcy may be the answer to your or your business’s current financial woes. Do not hesitate to seek advice from a bankruptcy attorney regarding your options.