Declaring bankruptcy is not a pleasant decision for any businessman. It is usually the worst-case scenario when the business is unable to clear its debts. Declaring bankruptcy also impacts the finances and credit of the business for a long time. Bankruptcy in the US is governed by Bankruptcy Codes and local bankruptcy rules. These are quite complicated and you must have a clear understanding before you decide to go ahead and apply for bankruptcy. Bankruptcy lawyers North Dakota specialize in bankruptcy laws and can advise their clients on the best course of action while declaring bankruptcy.
A business declares bankruptcy if it is suffering losses and is unable to pay its bills or clear its debts. Declaring bankruptcy in such a situation helps the business minimize its debts.
An individual filing for bankruptcy can apply under 2 Chapters of the Bankruptcy Code. They are Chapters 7 and 13. Each one of them has its specific set of terms and conditions. You can select the Chapter under which you file based on how well it is suited for your particular case. This can be quite confusing for a businessman with little knowledge of the complexities of bankruptcy laws. Bankruptcy lawyers North Dakota explain the terms of each of the chapters and suggest the best one for their clients.
Here’s an overview of Chapters 7 and 13 and what they mean to an individual filing for bankruptcy.
It is also known as liquidation bankruptcy according to which some or all of your assets may be sold to clear your debts. However, there is an exemption on certain types of properties which cannot be sold.
- Any individual or business can file for bankruptcy under Chapter 7.
- You are eligible to file under Chapter 7 if your disposable income is low enough to satisfy the low-income limit applicable for Chapter 7. You may either have a below-median income for your state or you must pass the ‘means test’ under Chapter 7.
- The Trustee in the bankruptcy case is responsible for selling all the non-exempt property of the debtor.
- The discharge in a bankruptcy case under Chapter 7 usually takes 3-5 months to be given.
- The main advantage of Chapter 7 for the debtor is that all his debts are cleared at one go and he can make a fresh start early after settling his debts.
- However, Chapter 7 does not provide any means to catch up on missed payments so that foreclosures or repossession may be avoided.
Chapter 13 is also known as reorganization. An individual filing for bankruptcy under Chapter 13 does not have to sell his assets as long as he repays his creditors according to the repayment plan mandated by the court. The repayment term given to the debtors is 3-5 years within which he has to clear his debts.
- Only individuals and sole proprietors can file for bankruptcy under Chapter 13.
- To apply under Chapter 13, the debtor must ensure that he does not have an unsecured debt over $419,275 or a secured debt above $1,257,850.
- The debtor has to make his payments regularly as mandated by the court for 3-5 years to clear all his debts.
- Although debtors are allowed to retain their property, they are required to pay creditors a sum that is equal in value to their non-exempt assets.
- A discharge in a Chapter 13 bankruptcy case is given after the payment plan is completed, 3-5 years as the case may be.
- Chapter 13 offers the benefit to the debtors that they can retain their property. Besides, they can also catch up on missed mortgage and non-dischargeable payments.
- On the flip side, the debtor has to pay the trustee for 3-5 years. There is a possibility that he may need to pay back a portion of general unsecured debts.
Although Chapters 7 and 13 cover most of the debts of the applicant, certain debts cannot be cleared under these chapters.
- Tax debts to Government
- Child Support
- Loans such as student loans or auto loans.
To get more clarity and a better understanding of bankruptcy laws in the US, you can consult the top bankruptcy lawyers North Dakota at Ward K Johnson Law Firm!