Layoffs, pay cuts, foreclosures…there are so many reasons for the drastic increase in debt burdened Americans who are toying with the idea of filing bankruptcy. Some are filing personally and some are filing for their business. In the fiscal year ending September 30th, 2008, the number of filings reached 1 million. This was a 30%+ leap from the same time period the previous year (according to the administrative office of the U.S. Courts).
For those who are considering joining the increasingly popular group of bankruptcy filers consider the three “flavors” available first and foremost.
The 3 Flavors of Bankruptcy:
Chapter 7: The most common form of bankruptcy. It offers a discharge of debt to individual filers and allows you to keep certain assets. The Chapter 7 process if different for businesses; their assets are liquidated to pay their creditors.
Chapter 11: This is the reorganization bankruptcy. It’s a good option for business owners who want to keep operating.
Chapter 13: This option allows individuals who have a regular source of income to maintain ownership of their assets, committing a portion of future earnings to repaying creditors. This involves a payment plan taking three to five years.
Is filing for bankruptcy protection the right choice for you? Consider this example of a person who SHOULD file for bankruptcy.
The person who SHOULD file for bankruptcy protection:
Chandler is 61. He opened a local hardware store in a shopping center near his suburban home in 2004 backed by a $125,000 line of credit. His sales took a massive hit during the recession and Chandler wasn’t able to meet his minimum monthly payments for an entire year. This resulted in a lawsuit filed by the lender against his hardware store for the money owed. Chandler was served with a notice to appear in court.
Chandler, in the above example, isn’t left with much of a choice. His best move is most likely to hire a bankruptcy lawyer and file for bankruptcy. This would require that Chandler put a value on all of the company’s assets and liabilities as well as tally all of the company income and expenses. Before filing, the amount of the debt owed and the likelihood of a settlement should be considered in comparison to the actual value of the company. But unless the business has too much value, filing would be a good solution in this situation. Immediately upon filing for bankruptcy, Chandler will enter the “automatic stay” period. This means that all creditors must cease attempting to collect on debts owed. They have to stop pestering Chandler for payment immediately. This makes filing a great option for Chandler. If he doesn’t, he risks the bank shutting down his company and liquidating the assets. Filing for Chapter 11 means that Chandler can keep his day to day operations running.
If you have questions about whether or not you should file for bankruptcy, contact the southern California bankruptcy attorneys at Westgate Law.