Bankruptcy: the very word sounds apocalyptic in nature. It can certainly feel that way, too. And while filing for it isn’t going to be at the top of anyone’s bucket list, it can be just the thing to escape harsh financial realities and set a course of restoration that allows you to eventually regain control of your life.
But bankruptcy also is fraught with complications, and if you don’t have a good legal understanding and strategy going in, it can get a lot worse before it ever gets better. We understand this reality at Davis, Ermis & Roberts, P.C., and we work with you to keep your spirits up every step of the way until you can emerge from the other side ready to thrive.
What You Will Consider Before Filing
Before filing for bankruptcy, there are certain considerations you need to keep in mind. What will it do to your reputation? Your self-esteem? How will it impact others — both creditors and perhaps even close personal friends from whom you’ve borrowed money? What will the process entail? Will it be worth it? What’s the path forward?
After taking an overview and “pre-planning” your bankruptcy, it’s time to think about which type to file. There are three main types, listed here:
- Chapter 7: This is the most common form of bankruptcy and is also referred to as “liquidation” or “straight bankruptcy.” The U.S. Bankruptcy Court holds jurisdiction. It determines the amount of dischargeable debts. It also determines your nonexempt property. Nonexempt property examples include but are not limited to a new vehicle in which you have equity; expensive assets that aren’t necessary for your business; a stamp, coin, or comic book collection; investments; and jewelry. The assets are sold and proceeds disbursed to your creditors.
- Chapter 11: This form of bankruptcy is frequently referred to as a “reorganization” bankruptcy and is used for restructuring a business (i.e., corporation, sole proprietorship, or partnership). Most smaller companies forgo this option in favor of the simpler Chapter 7 option. With Chapter 11, you can partially pay back your unsecured debt while maintaining business operations. It also provides the business and business owners relief from ongoing harassment from creditors.
- Chapter 13: A Chapter 13 Bankruptcy is also referred to as a “reorganization” or “wage earner’s plan.” Essentially, you enter into a set plan that allows repayment over a length of time (typically 36-60 months). You’ll have to prove you’ve got the disposable income for the plan. From there, you are protected from all collection efforts for the duration of the plan and you get to discharge any unpaid balance or dischargeable debts at the end of the plan. Particularly effective if you hope to hold onto secured debts such as a home or automobile during the bankruptcy.
What No One Tells You About Bankruptcy
Yes, bankruptcy is scary and there are stigmas attached. But there are also positives. For starters, it moves you from an uncertain and unsustainable position to one you can actually manage. Secondly, it allows you to save money in the long run, as you’ll ultimately be paying back less money than you would otherwise.
Furthermore, as with the Chapter 13 case, it can allow you to continue doing what you love while you pay back the debt. You don’t have to give up everything valuable. You can hold onto your home or car. And the cloud of a bankruptcy does eventually pass from your financial and credit history provided you meet your obligations.
In other words, it puts you on the right track and gives you a second chance. And don’t we all occasionally need a second chance? After all, you cannot control everything that’s going to happen in your life. You could lose your job. You might get a divorce. You could experience the death of a spouse or a layoff/furlough from work at the worst possible time. Perhaps there’s an unexpected accident and the exorbitant buildup of medical bills that place all your other accounts in arrears.
Life is a tsunami, and bankruptcy can help you through it. It can also help your creditors, oddly enough. That’s because when you’re underwater, they’re not seeing a dime. When you enter into bankruptcy terms, they receive some form of payment, and they are freed up from having to continually service a non-revenue producing account.
Your First Step to a Successful Bankruptcy
It may seem like overreach to put the words “successful bankruptcy” into a single phrase like that, but truthfully, bankruptcies can benefit everyone involved. You just have to know ahead of time what your goals are, and what the best options are to reach those goals. At Davis, Ermis & Roberts, P.C., we’ve helped individuals and businesses navigate these complex waters for many years, and we can do the same for you. Contact us today to discuss the best options available for your situation, and break the burden of debt once and for all.