About Small Business Bankruptcy

Small business bankruptcy is an option for you that can take off all your debts or pay them with protection. The two more common types of bankruptcies are Chapter 7 and Chapter 11 bankruptcies. Chapter 7 can be portrayed as liquidation, while Chapter 11 is more of reorganization, wherein you file a proposal on how you can possibly repay creditors.

Some of these debts can be paid partially or remain in full, while others can be forgotten. Debts that can be discharged are usually student loans, but it is usually hard to contend with creditors in wiping out a debt. Debts that remain are alimony, back child support, and tax debts.

If a person has already filed for bankruptcy, creditors are temporarily prohibited from collecting anything from them. The creditors have to wait first for the bankruptcy court to lift off the automatic stay before they can proceed with the regular collection.

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Chapter Seven and Chapter Eleven

The main difference between Chapter 7 and Chapter 11 bankruptcies is that in the former, the bankruptcy trustee takes away properties from you that can be used to offset the debt that you have, while in the latter, nothing will be taken way. This is because the income that you are currently making is the one that will be used to make the payments.

With regard to the properties that are to be taken away from you in Chapter 7, these can vary from state to state. However, there are common things that are usually allowed to be kept. Homestead exemption may or may not be availed, depending on the state. Up to $20,000 of equity can be exempted, and some debtors can still get lucky if his state protects all the equity inside his home.

Insurance, public benefits, retirement plans, and tools that can be used in jobs are kept by the debtors. In addition to that, personal property such as appliances, books, clothes, furniture, and musical instruments may be kept.

Making the Choice

If you are going to file for small business bankruptcy, then you have to meet with a bankruptcy lawyer and talk about the certain requirements. You might be wondering if you can choose between the two. If you are eligible for both, then you can make the choice for yourself. However, there are times that you might not be able to control the options due to the gravity of the situation.

Most people are opting for Chapter 7 since this allows them not to pay some of their debts. However, this can make it possible for you to lose your house. In many ways, Chapter 11 is still better. See to it first that you are still able to cope up with your debts given your monthly income. If you still can, then Chapter11 is wiser and more sensible.

Filing small business bankruptcy may be slightly different, as creditors can force you to go to it if they feel that enough is enough. The essence and procedures though are still the same. Nevertheless, bankruptcy must only be a last resort and should be avoided as much as possible. This is because it puts an ugly record on you, which could bring negative effects in other possible business opportunities in the near future.