Bankruptcy is a legal process available to people or business that cannot repay the debts that they owe to creditors. Filing for bankruptcy allows a person or business to protect themselves from creditors and get a fresh start.

There are two primary types of bankruptcy: personal bankruptcy and business bankruptcy.

Bankruptcy cases can be incredibly complex that requires specially tailored legal advice. In some cases, with the assistance of a skilled bankruptcy attorney, it may be possible to avoid filing bankruptcy or achieve a loan workout. If bankruptcy is unavoidable, you can plan your bankruptcy in such a way as to take advantage of the fresh start that bankruptcy can provide. Susan gives thoughtful legal counsel to all of her clients on the different aspects of bankruptcy, including when to file a bankruptcy petition to maximize its advantages.

Individual Bankruptcy

There are two options for individuals who must file bankruptcy: Chapter 7 or Chapter 13. The type of bankruptcy you file depends on a number of factors, including your income and ability to repay the debt. Both types of bankruptcy will require you to receive credit counseling from an approved credit counseling agency. A personal bankruptcy will remain on your credit report for up to ten years and can affect your ability to obtain credit in the future.

Chapter 7 bankruptcy is also known as liquidation because all nonexempt assets must be sold and distributed to creditors. A trustee is appointed to take over your property, and any property of value must be sold or converted to cash to pay your creditors. Some personal items and real estate may be exempt from being liquidated, depending on the laws of your state. After all of the nonexempt assets are sold and the money is given to your creditors, the remaining debt is discharged. If you have already filed under Chapter 7, you may be able to transfer your case to another chapter.

Chapter 13 bankruptcy requires you to make a payment plan rather than liquidate your assets.  In this type of bankruptcy, you can typically hold onto your property as long as you have income or wages and agree to a payment plan. A trustee will be appointed to collect the payments from you, pay your creditors, and ensure that you follow the terms of your payment plan. You will be required to repay all or part of your debt based on a three to a five-year repayment plan, and then the remaining debt will be discharged.

Business Bankruptcy

For businesses, there are three main ways to declare bankruptcy: Chapter 7, Chapter 11 and Chapter 13. In addition, Chapter 12 bankruptcy is available for family farmers and family fishermen. The type of bankruptcy that you file will be based on your ability to repay debt, the size of your company, and whether or not you plan to continue the possible.  

  • Chapter 7 bankruptcy for businesses allows a company to liquidate its assets to discharge its debts. This type of bankruptcy is typically used when a business can’t continue. A trustee is appointed by the bankruptcy court to take possession of your business assets and distribute them to the company’s creditors. After this time, the company usually cease to exist.  
  • Chapter 11 bankruptcy is also known as business reorganization. It can be by companies that plan to continue in the future. If you file for Chapter 11 bankruptcy, you must file a plan of reorganization laying out how your business will repay its creditors, and this plan must be approved by a court.
  • Chapter 13 bankruptcy is an option for some small businesses and sole proprietorships. It allows your company to get out of debt while keeping the business open. Like Chapter 11 bankruptcy, it is a type of reorganization where you will file a repayment plan with the court.