You may not know much about bankruptcy law. What you do know is that you're facing a serious financial crisis. Your credit card balance is sky high, and you have no way to pay it off. You have medical bills because of a loved one's recent surgery, and your boss just informed you that they are cutting costs and your services are no longer needed.
That sounds like a recipe for complete financial disaster, but it doesn't necessarily have to be. There are multiple types of bankruptcy, and if you qualify, you may utilize a viable option to help you obtain debt relief and then lay the groundwork for a stronger financial future. First, you have to understand the difference between bankruptcies so you can determine which one best fits your needs.
Chapter 11 is typically for business owners
While individuals sometimes file under Chapter 11 bankruptcy, you'll usually find that business owners are the ones who use it most. If you happen to be a business owner, you'll likely be glad to know that this type of bankruptcy may help you retain ownership of your company. It's a program that allows you to restructure your payments to creditors.
Chapter 11 is often voluntary. However, sometimes creditors file petitions seeking involuntary bankruptcy against business owners. It is typically larger companies who benefit most from Chapter 11 bankruptcy.
If complete debt forgiveness is your main goal
Chapter 7 bankruptcy is the one most Texas residents and others are familiar with. You must take a means test to determine if your income meets the qualifications. If it does, you will file this petition to activate a complete liquidation of all your assets. You will agree to using the converted value of the assets to satisfy your debts.
Many people hesitate to file Chapter 7 because they think it will destroy their credit rating. While your credit report will indeed show that you filed for bankruptcy, after a certain amount of time, it will no longer be on your report.
Chapter 13 may be best if you can't file Chapter 7
If you have reliable income and it's above the level required for Chapter 7 eligibility, Chapter 13 bankruptcy might be the way to go. This is also a restructuring plan where you may be able to retain certain assets and pay back creditors over time. Your lenders and the court have to agree to your proposed re-payment plan.
Take one step at a time
You might be able to make some changes in your finances that help you overcome your current crisis. If things are getting out of hand, for instance, if you've received a notice that your lender is threatening foreclosure, you may want to speak with someone well-versed in bankruptcy law to determine a best course of action.
Bankruptcy often helps people avoid foreclosure. It also often activates an automatic stay so that collections phone calls must cease and no one can file a lawsuit against you to collect a debt.