If you are looking to file for bankruptcy for the first time, then you will notice there are different chapters available. Chapter 7 remains the most popular, but others like Chapter 13 and 11 also exist. The bankruptcy petition you choose will significantly depend on your unique situations. As an individual, filing for bankruptcy may involve providing a myriad of financial documents relating to income, investments, assets, and benefits. If you are filing for bankruptcy as a business entity, your motivation may stem from a different set of concerns. Here is a brief look at the available bankruptcy petitions and the best choice for businesses.
Types of bankruptcy petitions
As aforementioned, there are three main types of bankruptcy petitions (7, 11, and 13). Each chapter has its unique benefits and shortcomings as follows:
1. Chapter 7 – Liquidation Bankruptcy
This is the most popular bankruptcy petition most people file. It can help you get rid of most types of debts, including unsecured credit card and medical bill debts. Anyone (individuals, married couples, groups, and companies) can file for Chapter 7 bankruptcy provided they are eligible. Chapter 7 suits you if you do not own any substantial equity to give up in exchange for the debt. Qualifiers must also pass the “means test,” which determines if you are eligible for this type of bankruptcy. If you do not pass the test, your other option is Chapter 13.
2. Chapter 11 – Commercial Bankruptcy
Chapter 11 bankruptcy suits commercial entities, particularly businesses including corporations, sole proprietorships, and partnerships. In the case of a corporation, the stakeholders’ assets are not affected apart from the equity amount they invested in the corporation. A sole proprietorship does not make this distinction, so the owner’s assets may be reoccupied. Partnerships work in the same way as corporations, but personal assets may sometimes be used to pay part of the debt owed to the creditor.
3. Chapter 13 – Repayment Bankruptcy
This bankruptcy allows the debtor to reorganize their debt and enter a new interest-free agreement for repaying the owed amount. Chapter 13 bankruptcy may involve increasing the duration for paying the debt, removing any interests, and lowering the monthly installments to manageable amounts. If you qualify for Chapter 13 bankruptcy, the court will issue a statement to protect you from being pursued any further by debtors.
4.Best bankruptcy petition for businesses
Chapter 11 is the ideal bankruptcy for businesses and organizations. Its design covers the needs of different types of companies, including corporations, partnerships, and sole proprietorships. A business owner can also file for Chapter 13 bankruptcy to enter a new reorganized repayment plan for their debt. Although business entities can file for Chapter 7, some areas are not adequately covered.
Finding the best bankruptcy petition for your business is a crucial process, especially if you want to salvage the venture moving forward. Bankruptcy status can significantly tarnish your image and credibility among both customers and investors. It is therefore essential to find highly experienced attorneys that can ensure you get the best agreement. This will increase your chances of keeping the business operational and recovering from bankruptcy.