What is bankruptcy?
Bankruptcy’s not an easy topic to talk about. Chances are, if you’re looking into bankruptcy, something has already gone seriously wrong, and you’re all out of options. Bankruptcy exists for a reason, though, and if it’s something you need to do, realize that there is a light at the end of the tunnel. This is the first in a series of posts intended to show you what bankruptcy is, who is eligible for it, what different types exist, and what the consequences of bankruptcy are.
First off, what is bankruptcy? In short, it is a legal status that is assigned in a court of law that says, essentially, “I can’t pay my debts”. Bankruptcy may include a full or partial discharge of the debt (meaning you don’t have to pay it anymore), or a restructuring (which means you have more time to pay it). Bankruptcy offers a debtor that’s in over their head to start over fresh, but it definitely has severe negative effects on credit scores.
A private individual filing for bankruptcy has to prove that they truly cannot repay their debts—if you file for bankruptcy when you actually can pay your debts, you may be guilty of bankruptcy fraud, which is much, much worse than being behind on your car payments. Corporate bankruptcy is a completely different issue, one that we will not deal with in this post. If you believe your small business is headed toward bankruptcy, seek legal counsel immediately.
In fact, in any bankruptcy filing, you’ll need a lawyer. Filing for bankruptcy by yourself (pro se) is highly inadvisable. Refer to your legal counsel over any issues regarding the bankruptcy, and be honest with them. There are no easy answers to questions of bankruptcy law, and simply filing from bankruptcy may not automatically stop evictions or repossessions.
There are a number of different types of bankruptcy for every situation. These are usually referred to by the Chapter of the Bankruptcy Code which describes them. This is where the phrase “Chapter 11” comes from. In the next post, we’ll get into the basics of the different types of bankruptcy as well as who can file.
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