Cleaning Up My Financial Disaster

Posted on: 3 March 2021

There are two basic types of bankruptcy filings you can pursue. One is a liquidation process that involves a court-appointed trustee selling your disposable assets. The other is a process where you can restructure your debts.

Every bankruptcy attorney fields questions about which approach is the right one for their clients. A bankruptcy attorney services provider will look at the following four factors.

Kinds of Debts

Chapters 11, 12, and 13 are restructuring processes that are aimed respectively at businesses, family farms, and individuals. Restructuring your debts is often the better option if you're dealing with secured debts.

These are debts where a creditor can take something back to satisfy the obligation, such as a car from a vehicle loan or a house from a mortgage. The reason a bankruptcy lawyer might recommend restructuring is that it is the only process where you have a chance to keep the asset tied to the secured debt.

Conversely, liquidation often works best for folks who have unsecured debts. These are debts like utility and credit card payments where the creditor can't claw back whatever you paid for.

Eligibility and Means Testing

Petitioners who make less than half of their state's median income are presumed eligible to file for liquidation under Chapter 7. If you don't qualify on that basis, you may undergo a means test where the court examines your income and debts to decide if you can file.

If you're not eligible for Chapter 7, then you may ask the court to do restructuring. However, you'll have to submit a plan that explains how you'll pay the lower amount if the court accepts your petition. Likewise, you'll have to show that you need to restructure your debts. This involves reviewing your finances to determine whether you can pay in full.

Mixed Solution

You may be able to file for Chapter 13 after completing a Chapter 7 case. A bankruptcy attorney might recommend this if you have secured debts that you can pay if the court discharges your unsecured debts. Essentially, the idea is to discharge things like credit card bills so you can then get on track paying something like your mortgage. This process can be complex, and it's wise to retain bankruptcy attorney services before considering it.

Business Type

If you're conducting a business bankruptcy, you'll most likely end up either filing Chapter 11 to restructure or Chapter 7 to retire the company's debts. Sole proprietorships can file Chapter 13 because the business owner's debt is personal debt. For more information, contact a bankruptcy attorney.