When a debt burden becomes overwhelming, bankruptcy can offer multiple benefits that any other debt relief options cannot.

When a debt burden becomes overwhelming, bankruptcy can offer multiple benefits that any other debt relief options cannot. It is available for individuals or businesses that cannot repay the debts owed to creditors.

In most jurisdictions, bankruptcy is imposed by a court order and is often initiated by the debtor. Bankruptcy eliminates most, but not all debts. Exceptions to bankruptcy are: most student loans, recent taxes, alimony and child support, debts acquired through fraud, government penalties, restitution or fines, debt from luxury services or goods, and certain cash advances taken within 60 days of a bankruptcy filing.

Types of Bankruptcy

Chapter 7

Basic liquidation for individuals and businesses. This is also known as Straight Bankruptcy, and is the simplest and quickest form of bankruptcy available. Certain requirements need to be met in order to qualify for this type.

Chapter 11

Similar to Chapter 13 filing, but targeted at businesses that are struggling to survive. By filing after you become insolvent, or unable to meet your debts, you can keep your business alive and handle your obligations responsibly.

Chapter 13

Rehabilitation with a payment plan for individuals with a regular source of income. This type enables individuals with regular income to develop a plan to repay all or part of their debts. It is also known as Wage Earner Plan.

Who Can File for Bankruptcy?

Prior to October 2005, it was largely up to a bankruptcy judge to decide whether a debtor met Chapter 7 requirements. Judges, therefore, could use substantial discretion when assessing the debtor’s financial situation. Under this old law, most filers chose to have debt discharged even if they were financially capable of repaying the debt in a Chapter 13 repayment plan. Consequently, the law has now been updated to weed out filers who can afford to repay some of the debt.

Under new law, a debtor must qualify for Chapter 7 by meeting certain criteria. If the debtor fails to meet Chapter 7 requirements, a bankruptcy court can convert the case to a Chapter 13 bankruptcy. There are two exceptions for filers that need to meet Chapter 7 requirements. One is for disabled veterans that file to eliminate debt that was incurred while on active military duty. The second is for filers with debt that primarily came from operating a business.

If you are struggling with creditors and debt, contact us as soon as possible to see how our lawyers can help.