Working With The Right Legal Professional

How To Make Sense Of Your Bankruptcy Options

31 January 2022

Elli Palo

Folks seeking bankruptcy attorney services will quickly learn there are two broad types of cases with a handful of additional options. If you're trying to figure out what sort of case to pursue, you need to understand the basic choices. You can break your options down by assessing your situation in the following four ways.

Liquidation vs. Repayment

A liquidation case involves the court selling any valuable and non-exempt assets. The court then divides the proceeds and gives them to your creditors equitably. A bankruptcy attorney will usually prefer their clients file for liquidation under Chapter 7 if they don't have any secured assets. Common secured assets include home mortgages and car loans.

You can also request a repayment plan under Chapter 11 or 13. If the court grants the request, your bankruptcy lawyer will propose a plan where you pay a reduced amount over three to five years.

Business vs. Personal

Both businesses and individuals can file for Chapter 7 relief. Most Chapter 11 cases involve businesses. However, some individuals with debts ranging into the millions may go this route, too. Chapter 13 is limited to personal bankruptcies. However, a sole proprietor business may be eligible under Chapter 13 if the filer never incorporated a company.

Ability to Pay

The court frowns on people who can pay trying to use Chapter 7 to avoid payments entirely. Consequently, a judge may reject a Chapter 7 petition if they believe the filer can afford to pay at least part of what they owe.

Similarly, the court doesn't want to see parties that can't pay struggling to make payments under Chapter 11 or 13. If someone doesn't have the resources to complete a repayment plan, a judge may reject the petition. Likewise, a judge may reject the petition if they believe the filer could pay in full without significant trouble.

In any of these scenarios, a rejected case means either starting over with a different petition or giving up. If the judge rejects a Chapter 7 case, for example, the filer might still file for Chapter 13. However, the court keeps all fees from the failed case. Also, the petitioner will have to submit fees to cover the new one.

Recommendation of Counsel

You should discuss your situation with a bankruptcy attorney before deciding which way to file. A bankruptcy lawyer can assess your finances and debts so they can recommend a course of action.

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