When advising clients on the various types of bankruptcy available to them, a bankruptcy attorney will typically consider the client’s financial situation, including their income, debts, and assets. They will also consider the client’s goals for filing for bankruptcy, such as whether they want to eliminate their debts entirely or simply reorganize them in a more manageable way.
Based on this information, the bankruptcy attorney will provide the client with information about the different types of bankruptcy and the pros and cons of each. This may include:
Chapter 7 bankruptcy: Also known as a “liquidation” bankruptcy, this type involves the sale of an individual’s or business’s non-exempt assets to pay off their debts. If the individual or business does not have any non-exempt assets, their debts may be discharged (cancelled) without the need to sell any assets. Chapter 7 bankruptcy is typically best for individuals or businesses with few assets and little income.
Chapter 11 bankruptcy: Also known as a “reorganization” bankruptcy, this type is commonly used by businesses. It involves the creation of a repayment plan to pay off a portion of the business’s debts over time. The business remains in operation during the bankruptcy process. Chapter 11 bankruptcy is typically used by businesses that are struggling financially but are still viable and want to continue operating.
Chapter 13 bankruptcy: Also known as a “wage earner’s” bankruptcy, this type is for individuals who have a regular income and are seeking to repay their debts over a period of time. Under a Chapter 13 bankruptcy, the individual creates a repayment plan that lasts for three to five years. During this time, the individual’s debts are not discharged, but rather, they are paid off according to the terms of the repayment plan. Chapter 13 bankruptcy is typically best for individuals who have a regular income and are able to make some payments towards their debts, but need a more structured repayment plan.
It is important for clients to understand the differences between the various types of bankruptcy and the potential consequences of each, as the type of bankruptcy they choose will have a significant impact on their financial future. A bankruptcy attorney can provide guidance and support to help clients make informed decisions.