In certain situations, bankruptcy may be the most suitable solution for achieving financial stability. If you’re considering filing for bankruptcy and would like expert guidance on whether it’s the best course of action for you, we encourage you to speak with one of our debt professionals. It’s possible that you have more options available than you initially realized, and we can help you evaluate your circumstances and explore all available options to determine the most appropriate path to financial freedom.

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What is Bankruptcy?

There are three main types of bankruptcy in the United States:

There are several different types of bankruptcy that an individual or business may file. Each type is designed to help debtors deal with their financial situation in the most beneficial way. Some of the most common types of bankruptcy include:

Chapter 7 Bankruptcy:

Also known as “straight bankruptcy,” this is the most common type of bankruptcy for individuals. It involves the liquidation of assets to pay off debts. The debtor’s non-exempt assets are sold, and the proceeds are distributed to creditors. The remaining debts are discharged, and the debtor is released from personal liability for those debts.

Chapter 11 Bankruptcy:

This type of bankruptcy is typically used by businesses and allows for reorganization of debts. It involves creating a plan to restructure the business’s finances and operations to make it profitable again. The business continues to operate during the bankruptcy proceedings, and the debtor retains control over the company.

Chapter 13 Bankruptcy:

This type of bankruptcy is available only to individuals with regular income. It involves creating a repayment plan to pay off debts over a period of three to five years. The debtor keeps their assets and makes monthly payments to a trustee who distributes the payments to creditors. Once the repayment plan is completed, the remaining debt is discharged.

What is the cost?

The costs of different types of bankruptcy can vary depending on the complexity of the case, the type of bankruptcy, and the location. Here are some general cost ranges for the three main types of bankruptcy in the United States:

Chapter 7 Bankruptcy:

The cost of a Chapter 7 bankruptcy typically ranges from $1,500 to $3,500. This includes attorney fees, court filing fees, and credit counseling fees. The cost can be higher if the case is complex or if there are challenges from creditors.

Chapter 11 Bankruptcy:

The cost of a Chapter 11 bankruptcy is usually much higher than other types of bankruptcy, as it is a more complex process that requires the help of attorneys and financial experts. The cost can range from $30,000 to $100,000 or more, depending on the size and complexity of the business and the location.

Chapter 13 Bankruptcy:

It’s important to note that these are general cost ranges, and the actual costs can vary depending on the specific circumstances of the case. It’s recommended to consult with a bankruptcy attorney to get a more accurate estimate of the costs involved in your case.

What are the cons?

Bankruptcy can have several negative consequences, including:

  • Credit Score: Filing for bankruptcy can negatively impact your credit score for up to 10 years. This can make it difficult to obtain credit, get a loan, or rent an apartment.
  • Public Record: Bankruptcy is a public record, and your name will be listed in a public database. This information can be accessed by anyone, including employers, landlords, and lenders.
  • Loss of Assets: In a Chapter 7 bankruptcy, non-exempt assets may be sold to pay off creditors. This can result in the loss of property such as a home, car, or other valuable possessions.
  • Difficulty Obtaining Credit: After filing for bankruptcy, it may be more difficult to obtain credit or loans, and if you do, the interest rates may be higher.
  • Emotional Stress: Bankruptcy can be emotionally stressful, and it can be difficult to deal with the stigma and feelings of failure associated with it.
  • Reaffirmed Debt: Some debts, such as student loans and taxes, may not be discharged in bankruptcy, and you may be required to continue making payments on these debts.

It’s important to carefully consider the potential consequences before deciding to file for bankruptcy. Bankruptcy should be considered as a last resort when other options for managing debt have been exhausted.

What are the limitations and how long does it impact your score?

The frequency with which you can file for bankruptcy and the duration of its impact on your credit report depend on the type of bankruptcy you file:

  • Chapter 7 Bankruptcy: You can file for Chapter 7 bankruptcy once every 8 years. A Chapter 7 bankruptcy will remain on your credit report for up to 10 years from the date of filing.
  • Chapter 11 Bankruptcy: There are no limitations on how often you can file for Chapter 11 bankruptcy. A Chapter 11 bankruptcy will also remain on your credit report for up to 10 years from the date of filing.
  • Chapter 13 Bankruptcy: You can file for Chapter 13 bankruptcy as often as needed. However, you may not receive a discharge of your debts if you file within 2 years of a previous Chapter 13 filing or within 4 years of a previous Chapter 7 filing. A Chapter 13 bankruptcy will remain on your credit report for up to 7 years from the date of filing.

It’s important to note that even though bankruptcy will remain on your credit report for a certain period of time, the negative impact on your credit score may lessen over time, especially if you take steps to rebuild your credit. Additionally, some lenders and creditors may be willing to extend credit to those who have filed for bankruptcy if they can demonstrate responsible financial behavior over time.

To discover whether bankruptcy is right for you, or how to avoid it, contact Better Debt Solutions today to learn about all of your options.

The cost of a Chapter 13 bankruptcy is usually less than a Chapter 11 bankruptcy, but it can still be costly. Attorney fees for a Chapter 13 bankruptcy can range from $2,000 to $5,000, and there are court filing fees and credit counseling fees as well.

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