Declaring Bankruptcy
Bankruptcy is often thought of as a last resort and the end of an individual or company’s financial life. In reality, declaring bankruptcy is a powerful tool that can be used to turn an unwinnable financial battle into a manageable burden. If you feel like you or your business needs a fresh financial start, it may be time to seriously consider whether filing for bankruptcy is right for you.
Bankruptcy Options for Individuals
Chapter 7
This is the most common type of bankruptcy Protection for individuals. When you file for this kind of bankruptcy, the court will issue an automatic stay that stops all creditor collection efforts. This includes any foreclosure proceedings and wage garnishments. Then, a trustee appointed by the court will look over all your assets and determine if any can be sold to help creditors collect their debt.
Thankfully, certain property is exempt from being sold off by the trustee to pay off your debts. Notably, in Nassau and Suffolk Counties, we enjoy a homestead exemption of over $200,000. This means that even if your home must be sold to satisfy creditors, you keep the value of the exemption. There are other kinds of property that are exempt, such as over $5,000 for your motor vehicle, over $6,000 in cash and bank account balances, and unlimited exemptions for IRA, 401 (k), or other retirement plans. After the trustee sells off any non-exempt assets, your remaining eligible debts are completely discharged, allowing you to get a fresh financial start.
Chapter 13
Rather than looking to discharge debts, Chapter 13 Bankruptcy allows individuals with regular income to restructure their debts and repay them over the course of 3 to 5 years. In order to file for Chapter 13, you must have a reliable and regular source of income. Chapter 13 filers will work closely with their attorney to create and propose a plan to pay back all or a portion of their debts in monthly installments. Just like with a Chapter 7 filing, filing for Chapter 13 initiates an automatic stay on any attempts to collect debt via foreclosure, wage garnishment, or harassment by creditors.
Unlike in Chapter 7, a successful filing under Chapter 13 will allow you to keep all of your assets regardless of any exemptions. This kind of filing also protects any co-signers who may have sponsored your outstanding loans, as creditors will be unable to collect from them so long as you continue to make payments in accordance with your Chapter 13 plan. The downside, perhaps obviously, is that none of your debts will be discharged. Still, for those with regular incomes, Chapter 13 provides an opportunity to tackle sizeable debt and get your financial future back on track.
Bankruptcy Options for Businesses
Small businesses generally have two options when it comes to filing for bankruptcy: Chapter 7 or Chapter 11. If the business plans on shutting down completely, it will file under Chapter 7. For a relatively low fee, this allows a trustee appointed by the Court to take control of all business assets and distribute them among creditors. This process typically takes a few months and is the final step in officially closing up a business.
Chapter 11, on the other hand, is meant for businesses that wish to remain open and expect to return to profitability. During the filing process, the owner of the business will retain control of day-to-day operations. Collection efforts are halted while the business creates a plan for restructuring and repaying its debts. This plan must be voted on by creditors and approved by the Court. If successful, a Chapter 11 filing will allow a business to completely pay off its debts and return to a fully operational status.
| Feature | Chapter 7 | Chapter 11 |
|---|---|---|
|
Primary Goal |
Elimination of debt or complete liquidation of a business |
Restructuring of business debt to allow the business to continue operating |
|
Control of the business |
Trustee controls how assets are liquidated |
You control the assets and day to day operations of your business |
|
Timeline |
3 to 6 months |
6 months to several years, depending on complexity |
|
Filing fees |
$338 |
$1,738 |
|
What the business must submit |
Official petition, list of assets and liabilities, and statement of financial affairs |
everything required for a Chapter 7, and a detailed reorganization plan |
Why Use an Attorney To Help You File?
It is technically possible to file for bankruptcy without the help of an attorney. However, even the official United States Courts website warns that filing without a lawyer is not advisable. The reason for this is simple: filing for bankruptcy is a challenging legal process during which the other parties involved are often not on your side.
When you file for any chapter of bankruptcy, the Trustee appointed by the court will be scrutinizing your assets heavily. This individual will be reading over your financial statements and your application with a fine-tooth comb, looking for any reason to deny you or to take possession of additional assets. You will also need to seek the court’s approval before you are finally granted a discharge. Under these circumstances, having an attorney by your side to make sure your filings are in order is absolutely crucial. If you are filing for Chapter 11 or 13 bankruptcy, the need for an attorney is even greater. filing for these chapters requires you to submit a restructuring and repayment plan that must be approved by your creditors and the court. This is a task that is next to impossible without the help of an attorney to let you know what the court and Trustee are looking for in your proposal.
If your application is denied, your automatic stay on collections and foreclosure will end. If your application is denied with prejudice, you may be barred from filing again for a set period, typically 180 days. Either of these outcomes could have devastating effects on your financial future.
When you trust an experienced attorney to handle your filing, you can rest assured that your petition will be handled with care to ensure you are not erroneously denied the fresh start you are entitled to. If you are ready to take the first step towards a new financial future, contact us today for a free consultation.