Hit by a perfect storm of local high unemployment, which stifles consumer activity, and higher operating costs derived from increased gasoline and other prices, many small businesses are struggling with escalating debts they’re unable to pay. Many small businesses took out loans in the pre-recession environment with high rates that weren’t believed to be a problem at the time because of the booming economy. Others are running up credit card and other debt to stay alive. Neither situation is sustainable in the current economic environment.

If your small business is on the verge of becoming insolvent, bankruptcy may be an appropriate means for you to discharge the business’ debts and protect your personal assets. Determining whether bankruptcy is an option for your business, and which form of bankruptcy to pursue is essential for small business owners seeking to resolve their debts and put their financial house in order.

Sole proprietorship, partnership or corporation?

Partnerships and corporations have more options in bankruptcies. Because these businesses are separate entities from their owners with their own assets and liabilities, the owners’ personal assets are usually safe in business bankruptcies. Chapter 11 and Chapter 7 bankruptcy are usually the most appropriate forms of bankruptcy for these businesses.

Chapter 7, 11 and 13

Chapter 11 bankruptcy is a reorganization of debt that business owners can use to restructure their debts in a way to make payment easier or to buy time. Chapter 11 allows businesses a variety of useful tools to help get its house in order. A business in Chapter 11 can get loans on favorable terms by agreeing to give new lenders the first crack at the business’ earnings. The business is also protected against litigation to recover debts while under Chapter 11.

Chapter 13 bankruptcy resembles Chapter 11, but is more appropriate for very small partnerships or sole proprietorship businesses. In a Chapter 13 bankruptcy, the business can continue to operate while income beyond certain amounts is applied to the business’ debts over a three to five year period. After this period, if repayment is made, the remainder of the debtors obligations are discharged.

How do you know?

Although it can provide a way for consumers to discharge crippling medical, credit card and other debts, bankruptcy has some pretty harsh consequences. For starters, it sits on the consumer’s credit record for almost a decade, negatively impacting consumers’ chances of getting a car or home loan and receiving favorable terms on loans that they can get.

On average, borrowers with a bankruptcy on their credit history get loans at interest rates that are several points higher than those of borrowers who have a clean credit history. Also, while bankruptcy alone can’t bar you from a job, if it dings your credit history bad enough it can be a detriment in getting employed by employers who check credit histories as part of their background check process. Also, if you’re not careful in calculating your exemptions in a Chapter 7 bankruptcy, you could end up losing property you thought you could keep.

The bottom line is that bankruptcy is a last resort and shouldn’t be entered into lightly. There are several alternatives to bankruptcy anyone considering this measure should be aware of and take advantage of if these options are applicable to their situation. Prior to any bankruptcy filing, the law requires that individual filers meet with a credit counselor at their own expense. During this meeting, the counselor will likely discuss options with the individual such as:

Debt consolidation:  High minimum payments on multiple debts may eat away at individual’s monthly income, and their ability to retire debt in a timely fashion. By consolidating debts, consumers can get the amount of money they must spend on debt service each month down to a more manageable level, and could also possibly obtain a more attractive interest rate.

Out of court settlement: Many creditors will accept an out of court settlement on debts for amounts far less than the amount of the debt. Creditors do this because the cost of pursuing debts in court from people who likely don’t have the money to pay it anyway often exceeds the amount of the debt. You can negotiate a debt settlement on your own, or hire firms devoted to this type of work to handle it for you.

A debt settlement program may help you resolve your debts, but it will likely have a negative impact on your credit history and rating. This impact will not be as severe however as a bankruptcy.

Negotiate: In the current climate of mass defaults, creditors are willing to cut deals in order to collect some of what they’re owed. Contact your credit card company and other debtors and see if they’re willing to make concessions on minimum monthly payments and interest rates. You might be surprised by what you hear.

Just pay it: The truth is that you incurred the debts you’re being dunned for, and it’s your responsibility to pay them. With the help of a credit counselor, or a money manager, you may be able to learn how to reduce your monthly expenses enough to where you can cover your debts without having to go through bankruptcy. Eliminating unnecessary entertainment and other expenses for 6 to 24 months may help you knock down your debt and develop better money management habits.

While many people get into financial trouble through no fault of their own, many others find themselves facing bankruptcy because they lived beyond their means. Doing basic money management drills such as setting a budget and taking advantage of coupons and various other money saving options can help you get back on your financial feet.

Of course, there are some cases when bankruptcy is the only feasible alternative. If you must declare bankruptcy, be smart. Get your documentation together, inventory your assets and your liabilities and hire a competent bankruptcy attorney. A botched bankruptcy can leave you in as bad or worse shape than you were in before you filed. Getting it right is imperative if you plan to get your finances back in order.

Bankruptcy doesn’t wave a magic wand and make your debts disappear. It’s a stress-fraught and time-consuming process that can sometimes be more trouble than it’s worth. If you can take advantage of a bankruptcy alternative to avoid filing for Chapter 7 or Chapter 9 bankruptcy, it is highly advisable that you do so to avoid the legal fees, paperwork and long term consequences of this last ditch proceeding.

The BAPCPA was passed in response to a perceived increase in abuse of bankruptcy protection by consumers to wipe away credit card debt. The law was heavily promoted by the financial services industry, which claimed that many consumers were running up credit card and other unsecured debt just to walk away from them by filing Chapter 7 bankruptcy, under which most debts are erased after the liquidation of non-exempt assets.In most cases, these debtors assets were largely exempt from liquidation, making Chapter 7 an easy way for spendthrifts to run up big debts and then walk away from them scot-free.

Chapter 7 changes

Among the laws greatest impacts were its changes to Chapter 7 bankruptcy filings. In the past, debtors could file for Chapter 7 regardless of their income. Under BAPCPA, a means test was instituted to keep middle and upper income individuals from filing bankruptcy under Chapter 7. When an individual files for bankruptcy protection under Chapter 7, the court determines whether his or her income is above the state median income. If it is, the means test comes into play.

Under the means test, the court looks at the individual’s income and bills and determines the individual’s monthly disposable income. When making this judgment, the court takes into account family size, living expenses and some other factors.

For individuals who must submit to the means test, their monthly income is calculated and reduced by a set schedule of deductions set forth by the Internal Revenue Service.

These deductions include:

• Living expenses as defined under the IRS’s collection standards.
• Actual living expenses not covered by IRS standards, including health insurance, health savings account expenses and disability insurance.
• Expenses for protection from domestic or family violence.
• Expenses for nondependent family members care
• The expenses of administering a Chapter 13 repayment plan
• School expenses, up to $1,500 per year for minor children
• Home energy costs
• 1/60 of all secured debt that would come due within five years after the filing of a bankruptcy case
• Charitable donations
• 1/60th of priority debt

In general, if the individual is found to have a monthly disposable income of more than $183.50 after expenses, he or she is ineligible for Chapter 7 bankruptcy. If the individual doesn’t qualify for Chapter 7 bankruptcy, he or she must file for Chapter 13 protection. Under Chapter 13, the individual is placed in a repayment.

Waiting periods

Another change resulting from BAPCPA was an extended time period between bankruptcy filings. In the past, debtors had to wait six years between Chapter 7 bankruptcies. Now they must wait eight years.

Tougher homestead exemption requirements

Prior to the passage of BAPCPA, the amount of a debtor’s home equity protected from liquidation to settle debts was determined by state law. For instance, in Florida, your home is completely exempt from liquidation, while in other states only a part of its value is. Under the new law, if you haven’t lived in a state for more than two years, you’re only able to claim the home exemption available in the state where you previously resided. Also, if you bought your house less than 40 months ago, or if you’ve been found guilty of certain criminal acts, you can only exempt up to $125,000 of your home’s value, no matter what your state’s homestead exemption is.

Credit card debt

Under the new law, the courts take a closer look at individual’s credit card debt and are more likely to toss cases out on a presumption of fraud. The new law expands the court’s ability to presume fraud. BAPCA reduces the amount of money a debtor must spend for “luxury goods” before the presumption of fraud is invoked. The old limit was $1,225. The new limit is $500. Also the amount of money charged in cash advances to trigger a presumption of fraud has dropped from $1,225 to $750. Also, if a debtor charges any item worth more than $500 within 90 days of filing bankruptcy, the presumption that the debtor charged the debt with no intention of paying it will arise.

Retirement plans and consumer benefits

One positive benefit the law conferred upon individuals was increased protection for retirement plans. BAPCPA expanded the number of retirement plans exempt from liquidation in a bankruptcy.

Another provision of the new law that’s beneficial to consumers is its credit counseling requirement. Now debtors hoping to file Chapter 7 or 13 bankruptcy must undergo credit counseling at their own expense within 180 prior to filing. The credit counseling requirement helps debtors determine whether bankruptcy is right for them, and coaches them on better money habits they can follow after their bankruptcy proceedings.

Unintended consequences

Under the new law, attorneys are held liable for any false information they may file on behalf of their clients. This has led attorneys to be more diligent in verifying clients’ information, and has also led to an increase in attorney’s fees for bankruptcy filings.

While Chapter 7 bankruptcies, bankruptcies that result in a straight discharge of debts after the liquidation and sale of non-exempt assets, remain the majority of bankruptcy cases, a growing number of Chapter 13 bankruptcies are being filed, thanks to a law tightening requirements for obtaining a Chapter 7 bankruptcy.More than 400,000 individuals filed for Chapter 13 bankruptcy in 2009, up by about 12 percent from the previous year.

When considering filing for bankruptcy, individuals should understand the different types of bankruptcy and how each type will impact their finances so they’ll be able to choose the best bankruptcy option available, or find another way to discharge their debts.

What is Chapter 13 bankruptcy?

Chapter 13 is commonly known as a reorganization bankruptcy, a bankruptcy that allows debtors to reorganize their debts and pay them down over a period of three to five years. In the past, Chapter 13 was most often filed by folks with substantial assets that were non-exempt from liquidation under a Chapter 7 bankruptcy. To avoid having these assets sold off to repay creditors, these folks filed a Chapter 13 bankruptcy instead, which gave them more leeway to repay their debts, some of which were reduced by the courts.

The bankruptcy courts now impose a means test on individuals seeking to file a Chapter 7 bankruptcy. If the individual’s income is more than the state median, the court may decide that the individual filing for bankruptcy should do so under Chapter 13 instead. In general, if your disposable income, that is income after bills and basic living expenses, is more than $185.50 per month, you’ll be forced to use Chapter 13 instead of Chapter 7.

Anyone is eligible to file Chapter 13 bankruptcy so long as their unsecured debts are less than $336,900 and their secured debts are less than $1,010,650. Prior to filing for a bankruptcy, the court will require you to see a credit counselor at your own expense. During this visit, you can find out if Chapter 13 is right for you.

How does it work

In a chapter 13 bankruptcy, you’ll need to submit information regarding your income, assets and debts to a court-appointed trustee during a proceeding called the first meeting of creditors. This occurs after your attorney has filed the petition for Chapter 13 protection.

The court will determine how much money you’ll have to repay over a three to five year period, depending on your income and how much you owe. Once this is determined, you’ll be put on a repayment plan. Chances are that you won’t have to pay all of the debt you owe, depending on the size of your debt and your income, the court will likely prioritize your debts, requiring you to pay in full certain debts and only partially pay others over your repayment period.

During your period of repayment, you’ll make payments on the debt, or you can have deductions made from your paycheck. If you’re unable to make payments because you lose your job or under certain other circumstances, the court can alter your repayment plan, or, in hardship cases, discharge it altogether.

Benefits of Chapter 13

There are a few benefits to filing a Chapter 13 bankruptcy rather than a Chapter 7 bankruptcy. When you file a Chapter 13 bankruptcy, you have the opportunity to save your home from foreclosure because the mortgage debt you’re behind on can be made part of your debt repayment plan. Also, a Chapter 13 plan helps protect the credit of co-signers on any loans you may have taken out.

The downside

Just because you repay your debts under a Chapter 13 bankruptcy, you don’t get off the hook with regard to the negative impact of a bankruptcy on your credit report. Your bankruptcy will sit on your credit report for 10 years, and make it tougher for you to get loans or credit, and will likely run up your interest rates if you do. While the bankruptcy stays on your credit report for 10 years, most of its negative impact will abate after five.

With a Chapter 13 bankruptcy, and a commitment to repayment on your part, you can help rebuild your financial life. While it does not provide the quick discharge of debt that a Chapter 7 bankruptcy does, a Chapter 13 bankruptcy can let you keep your home, zap high credit card interest rates and get on with your life after discharging your debt.

As the number of people filing for bankruptcy increases, so also will the number of people committing bankruptcy fraud increase, according to experts. It’s estimated that about 10 percent of all bankruptcy filings contain some element of bankruptcy fraud. More than 1.4 million bankruptcies were filed last year, so by that estimate, there were more than 140,000 instances of bankruptcy fraud in 2009.

While bankruptcies and bankruptcy fraud may be on the rise, prosecutions of bankruptcy fraud are declining. In 2009, the government prosecuted the lowest number of bankruptcy fraud cases since 1986. While only a few people are prosecuted for bankruptcy fraud each year, you don’t want to be one of the ones that are. On top of the legal fees and restitution costs involved, the average person convicted of bankruptcy fraud serves about 36 months in federal prison for their crimes, according to U.S government statistical data.

Bankruptcy is a legal process that lets businesses or individuals with crippling debt to discharge their debts or repay them under modified conditions to make payment easier. Attempts to conceal assets in a bankruptcy proceeding constitutes bankruptcy fraud. If you’re charged with bankruptcy fraud and convicted, you can be fined up to $250,000 and be forced to serve up to five years in federal prison.

Types of fraud

In general, there are three forms of bankruptcy fraud: concealment of assets, multiple filings and petition mills. Concealment of assets is perhaps the most common form of bankruptcy fraud, and petition mills the most elaborate.

Concealment of assets, the most common method of fraud, is, as the name suggests, hiding your assets from the bankruptcy court. This form of bankruptcy fraud happens when the individual filing for bankruptcy protection hides assets during the bankruptcy proceedings to keep them from being sold off to repay creditors. There’s a variety of ways debtors can do this, including failing to list them on the assets declaration submitted to the court, transferring the assets to another party or moving assets into foreign accounts, such as bank accounts in Switzerland or the Cayman Islands. It’s estimated that concealment of assets accounts for nearly 70 percent of all bankruptcy fraud.

Multiple filing is another form of bankruptcy fraud. This occurs when an individual files for bankruptcy in more than one state. The individual will submit filings in more than one state, using incomplete lists of assets or fake names and information. The point of the multiple filings is to prevent the liquidation of non-exempt assets in a bankruptcy proceeding.

A petition mill is a form of bankruptcy fraud committed by a third party. In a petition mill scheme, the debtor is usually approached by a firm that offers to help them avoid eviction from their rental homes. The firm obtains the personal and financial information of the tenant, and then files bankruptcy, while still taking the tenant’s money. This drags out the process but brings no real benefit to the tenant, who often does not know that bankruptcy has been filed in his or her name.

The passage of new laws tightening up requirements to obtain a Chapter 7 bankruptcy, which discharges debts, have helped add to the number of bankruptcy cases. Under the new law, if you have disposable income of more than $183.50 per month, you have to file Chapter 13 rather than Chapter 7. Under Chapter 13, you’re forced into a repayment plan instead of having your debts forgiven after the sale of non-exempt assets (in many Chapter 7 cases, all the filer’s assets are exempt).

Why are there so few bankruptcy fraud prosecutions?

The truth is that if you commit bankruptcy fraud, you only have about a one in a thousand chance of being prosecuted. Bankruptcy fraud cases are tough to prove, and the federal government doesn’t have the time or resources to run down the hidden assets of every thousandaire who stashed a few bonds somewhere. Also, many of the trustees appointed by the federal government in bankruptcy actions don’t have the necessary expertise in tracking and recovering stolen assets. Bottom line: Unless you’re a high roller, and the government has a pretty good suspicion that you’re hiding assets, you most likely aren’t going to be prosecuted.

However, prosecutions of ordinary people do occur, and when they do, the courts come down hard on guilty parties. The benefits involved with committing bankruptcy fraud is not worth the potential risk to your finances and your freedom.

More than 1 million Americans filed for bankruptcy last year, and the number of people filing personal bankruptcies has trended upward in recent years because of the poor economy and other factors, such as growing health care costs.

When filing or bankruptcy, it’s important to file for the type of bankruptcy that’s most appropriate to your individual circumstances and to make sure all paperwork is filed correctly. A botched bankruptcy could see you pay more than you ought to in debt repayments and attorneys’ fees or lose property that, had the bankruptcy been filed correctly, you would have been able to retain.

When should I file for bankruptcy?

Bankruptcy has some long-lasting consequences. It stays on your credit report for 10 years, and some employers ask whether you’ve filed bankruptcy on employment applications.

Before filing bankruptcy you should consider other alternatives such as debt consolidation or selling assets to pay off your debts. However, if you’re beset with outrageous medical bills, or if your debts will prevent you from retiring or being able to fund your children’s college education, you may want to consider bankruptcy as a way to get a fresh start.

Current bankruptcy law requires debtors to seek credit counseling at their own expense before filing for bankruptcy. While this adds to the cost of filing for bankruptcy, a credit counselor can help you determine whether bankruptcy is the solution to your problems and what type of bankruptcy you should file.

Hire an attorney

Thinking about representing yourself in bankruptcy court? Don’t do it. Unless you’re a financial or legal genius, you shouldn’t be representing yourself in bankruptcy court. Think you’re a genius? Then why are you bankrupt?

The fact of the matter is that bankruptcy forms are incredibly complicated, and they’re specifically designed that way by the federal government to discourage bankruptcy filings. Screwing up these forms could cost you in additional debt payments, or losing exemptions that could result in you having to sell property to settle your debts that you otherwise could have kept. Save yourself a lot of grief and expense. Bite the bullet and hire a competent bankruptcy attorney.

Paying for it

Silly as it sounds, it costs money to go broke. Court fees for Chapter 7 and Chapter 13 bankruptcies, the most common personal bankruptcies, are $200 and $185. The average attorney’s fee for bankruptcy work is $1,700, but this can vary by state and municipality. In some areas, if your case is desperate enough, you may be able to obtain help from a legal aid or other social services organization.

You may want to cease payment on some debts as you prepare to go into bankruptcy in order to raise the necessary cash. Be warned, however. Don’t run up any new debts, as you may be sanctioned by the court for taking on debts you had no intention of repaying.

Choosing your chapter

Once you’ve met with the credit counselor and hired an attorney, you’ll need to chose which chapter of the bankruptcy code you’ll be filing under. Most personal bankruptcies are filed under Chapter 7 or Chapter 13. Under a Chapter 7 bankruptcy, your personal assets not covered by exemptions are sold off to pay your debts. Whatever’s not paid off is written off by your creditors, except for certain debts such as child support and student loans. Under a Chapter 13 bankruptcy, your debt is reorganized and you’re placed in a three to five year repayment plan. The benefit of a Chapter 13 bankruptcy is that it often reduces the amount you have to pay back to your creditors. Once the three to five years is up, your remaining debt, save for things like child support and student loans, is discharged.

Under a recently passed federal law, there’s a means test to determine who can file Chapter 7 bankruptcy. Folks who have too much income for a Chapter 7 bankruptcy are instead allowed to file a Chapter 13 bankruptcy.

For farmers and fishermen, Chapter 12 bankruptcies are also available. These bankruptcies resemble Chapter 13 bankruptcies, but are specifically tailored to the needs of farmers and fishermen.

Going to court

Once your attorney files your petition for bankruptcy, the court will appoint a trustee and you’ll be called in for what’s known as a first meeting of creditors. In all actuality, this will be a 10 minute meeting between yourself and the trustee in which you’ll talk about your debts and assets and swear to the validity of paperwork describing your debts and assets that has been submitted to the court. The trustee will take your information and determine what assets, if any, can be sold to repay creditors, or, in a Chapter 13 case, work out how much you should pay back your creditors. After the meeting, your creditors will have 60 days to challenge the discharge of your debts or your debt repayment plan. After that, your debts will either be discharged in a Chapter 7 case, or you’ll begin your repayment under a Chapter 13 bankruptcy.

What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy is a provision of the U.S. Bankruptcy code that discharges a debtors’ obligations by selling off any non-exempt property and putting it into the hands of a court-appointed trustee, who then uses the proceeds to pay off creditors according to a prioritized schedule set by the code.

In most personal Chapter 7 bankruptcies, all property is exempt and the proceeding acts to wipe clean the debtors slate, allowing him or her a fresh start. That’s not to say there aren’t penalties for filing bankruptcy. Individuals filing bankruptcy must pay court and attorney’s fees and their credit record will be negatively impacted for nearly 10 years.

How do you file?

Bankruptcy filings are begun by the filing of an official petition in bankruptcy court. While it is possible to represent yourself in a bankruptcy proceeding, it’s highly inadvisable. Bankruptcy proceedings are highly complicated legal matters, and recent changes to the bankruptcy laws have made the doubly onerous. The consequences of a botched bankruptcy are the possible loss of property that might otherwise have been exempt had your bankruptcy been handled by a competent professional.

In your petition, you’ll have to list all your creditors and assets. Once the bankruptcy petition has been filed, the court will issue a stay against any collection proceedings or lawsuits currently against you.

Following the filing of the petition, the court will appoint a trustee and will call a meeting of your creditors. There the trustee will ask you about your debts, and the creditors may also ask you questions as well (this seldom happens, however).

At some point in the proceedings, the court will also apply a means test to the debtor. If your income is above the state median, you may be forced to file a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, your debts are reorganized and you are required to enter into a repayment plan to pay back some or all of your debts.

After the first meeting of creditors, the trustee will take custody of any non-exempt property and liquidate it to repay your creditors. Once the proceeds of the liquidation have been parceled out, the remainder of the debtors obligations are discharged, except for some debts such as child support, spousal support, criminal restitution and student loan debts.

Exempt property

When filing Chapter 7 bankruptcy, some of your property will be exempt from liquidation by the court-appointed trustee. This property usually includes a portion or all of the value of your home, and certain other property such as vehicles and tools of your trade. Each state has its own guidelines regarding exempt property, and there are also a set of federal guidelines. Individuals are free to choose the guidelines they want to follow, their state’s or the federal guidelines.

Here’s the federal guidelines:

Homestead — $20,200. If state guidelines supersede this exemption, the federal government sets and absolute cap of $125,000 on the value of a home that may be exempt from being liquidation.

Life insurance policy with loan or other value — $9,850.

Household goods — $9,850, $475 per item.

Jewelry — $1,225

Motor vehicle — $3,225

Personal injury compensation payment — $18,450

Tools of trade — $1,850

Wild card — $925 of any property.

Federal exemptions also prevent the liquidation of pension plans covered by ERISA and employee contributions to deferred compensation and health insurance plans. Also exempt are certain funds contributed to a child or grandchild’s education fund.

Long term impacts

As mentioned before, there are some substantial impacts to filing a Chapter 7 bankruptcy. The bankruptcy will be listed on your credit report for 10 years, impacting your ability to get loans or get loans at good interest rates. The negative impacts of the bankruptcy usually dissipate before the 10 year period does, however. Also, once you file a Chapter 7 bankruptcy, you won’t be able to file another bankruptcy for eight years.

More than 1 million Americans filed for bankruptcy last year, many of whom were swamped with excessive medical bills. While filing for bankruptcy can be a traumatic process, it can help individuals rebuild their finances and their lives. Understanding your bankruptcy options will help you choose the bankruptcy plan most likely to help get you back on your feet as soon as possible.

To file Chapter 11, you need to take into consideration the appropriate process for doing so.  Chapter 11 is the process of filing bankruptcy for businesses or organizations.  In this process, your debts are forgiven, but reorganizing the debt first and repaying it in this manner is also a possibility.

With Chapter 11, the debtor, which is the business or the business owner, can enter into an agreement with the creditors that will help him keep the business moving forward, while still working to pay down debts.  Much like Chapter 13 works for a person, Chapter 13 bankruptcy is designed for rebuilding a business’s credit situation.

Who Qualifies?

To file bankruptcy of any type, it is important to talk to your attorney about the process.  They will help determine if you qualify for filing bankruptcy or if you may need to work through other forms of repayment instead.  Many businesses will qualify for this type of business bankruptcy.  Chapter 11 is designed to provide help for debtors that have a limited liability, corporation or partnership.  No government entity can file this type of Chapter 11 case, though.  With the help of your attorney, you can determine the best route to take.

To file chapter 11, you will need to file a voluntary petition with the court.  This petition is designed to explain your situation and to outline what your goals are.  For example, all assets and liabilities are outlined.  In addition, a statement of financial affairs is considered.  Filing this is a mandatory element because it will outline your financial status and provide the court with information on whether or not they should consider filing bankruptcy for you.

The goal of filing this type of bankruptcy is to adjust and then reorganize the debts that you have that relate to the business, the business’s property or other assets.  The goal is not to close the business, nor is it to have the business go under.  Rather, the goal of Chapter 11 is to reorganize the obligations you have so that the business can continue to operate.  During the process, the debtor, or business owner, will remain in possession of all of your property and you, with the help of your lenders, will develop a plan to keep the business functioning so it generates money to help repay the debts.  In some situations, a trustee is appointed to manage the filing.  If there is any indication of fraud or mismanagement, the trustee may be needed (and is generally requested by the lender) to insure that repayment of the loans and debts is done correctly.

Should I File Bankruptcy?

Should you file bankruptcy?  If you have personal debt, then you will need to file Chapter 7 bankruptcy for total discharge of your debts or file Chapter 13 bankruptcy to reorganize your debts and to continue to repay them.  If you have business debt, then filing Chapter 11 is a better solution.  Making the decision to file bankruptcy, or not, is one that has to be a personal decision.  The fact is, knowing when to file bankruptcy is something you need to consider in terms of keeping your business up and running or knowing when there simply is not a way out.

For those that are unsure about how they should file bankruptcy, or when they should file, work with an attorney that specializes in Chapter 11 bankruptcy.  The attorney will help you consider all of your debts, all of your plans and help you to work with lenders to minimize the costs and to get a plan of reorganization in the works.

If you are considering filing bankruptcy, you may want to consider the benefits when you file Chapter 7 bankruptcy.  This term is in use to describe the area of the law that describes

the process for filing bankruptcy.  If you are a person or a couple, you may want to consider this type of filing.  In this situation, your debts are discharged fully, which means you do not have to repay them once the process goes through.  There are good and bad aspects of filing Chapter 7 bankruptcy, though.  You should consider both before you start the process.

What Happens?

If you consider the difference between when you should file Chapter 7 and when you file Chapter 13 bankruptcy, you will see why so many people go with this route.  In Chapter 7, your debts are completely forgiven and you do not have to repay them at any time after they are discharged legally.  In Chapter 13, the same is not true.  Rather, in this arm of the legal system, your debts are restructured so that they are easier for you to repay.  For example, your credit card debt will have interest rates halted or lowered and your monthly payments will have a design to fit within a specific budget.  In Chapter 13 bankruptcy, you still have to repay your debt, but you may have an easier time of doing so.  Chapter 7 is more drastic and therefore harms your credit more so, and for longer periods, than Chapter 13 will.

Qualifications and How to File Bankruptcy

The legal system has changed somewhat in the way that bankruptcies are filed.  It used to be that to file bankruptcy, you simply needed to file a few forms, state that you could not repay your debt and you were on your way.  Now, you have to go through a much more complex type of filing process, often with a range of requirements that make it harder for you to qualify.  In this process, the goal is to help you file bankruptcy, but also to protect the credit lenders who were being taken advantage of when people filed bankruptcy by abusing the system.

Here are some of the aspects of filing bankruptcy will be required of you.

• Pass a bankruptcy qualification test which outlines if you have the assets to repay your debts, if you have worked hard enough to repay debts and other aspects
• Work through Chapter 13 or consumer credit counseling first, in some situations, in order to help creditors get the funds they are entitled to whenever possible
• Take financial management courses to insure that you have the necessary knowledge and skills to manage your debts after you file chapter 7.

Businesses

If you are a business, and you need to file for bankruptcy, Chapter 11 is an option for you.  In this type of bankruptcy, you will go through the same structure as Chapter 7, but it has a design for businesses rather than individuals.  Your business likely will need to go through the process to file Chapter 13 bankruptcy before you will be able to file Chapter 11.  Again, this is to help protect credit lenders.

If you are considering if you should file for bankruptcy, a good place to start is with the information provided to you by an attorney.  They will help you follow the letter of the law so that you qualify to file for bankruptcy and to insure that every aspect of the process is met.  A qualified professional will be able to get you through the process faster and with less trouble along the way to filing.

In 2005, the United States government went through the process of adjusting bankruptcy law.  In doing so, they may it more common for some people to have to file Chapter 13 bankruptcy rather than allowing them to instantly file Chapter 7 bankruptcy.

The reasons for this move are very clear.  Before this time, there were many abuses of the system, including problems with borrowers taking on large amounts of credit knowing and with intention of simply file for  bankruptcy to get out of it.  These abuses to the system cost the credit card companies untold dollars and they were reflected in higher interest rates to all credit card users.  The new changes in the law have been designed to help protected everyone.

What is Chapter 13?

When you learn how to file for bankruptcy, you should consider what qualifications you have for filing Chapter 7 or filing Chapter 13.  As a business, you may need to file Chapter 11, designed specifically for businesses and organizations.  In Chapter 13, your debts are not completely discharged, as they are in Chapter 7.  Rather, a restructuring plan is put in place.  Your debts need to be carefully considered here.  A counsel will work with you as well as your lenders to find an agreement to repaying the debts.  The lenders know they need to work with you because you are on the verge of discharging the debt.  Therefore, they may help by lowering your monthly payment, reducing the amount of money you owe (such as removing some of the finance charges, late fees or over the limit fees) and they may even stop interest accumulation on the accounts.

Once you have come to an agreement with your lenders (which is also in the best interest of your own) you can work to repay the debts you have.  Most Chapter 13 filings are designed to pay off the debt over a specific amount of time, for example two to three years.  This length of time is determined by the amount of money you owe, the amount of money you make as well as the restructuring process itself.  With everyone working on the same page, the goal is to get your debts repaid in an easier fashion for you.

In comparison to when you file Chapter 7 bankruptcy, when you file for bankruptcy under Chapter 13, your debts are not discharged.  In Chapter 7, you will show that you cannot repay the debts, you do not have the means to doing so, or the debts are too large to repay.  In today’s laws, you may be forced to go through Chapter 13 before you can qualify for Chapter 7.  The process will involved talking to a consumer credit counselor who will work with your lenders for you.

The fact is, no bankruptcy looks good on your credit report, but the bankruptcies that are filed Chapter 13 are also better than those that go for Chapter 7.  When you go to rebuild your credit over time, you will find that the rebuilding process is easier when you haven’t completely discharged your debts.

When you are considering filing bankruptcy, take into account the various requirements in place for you.  Hire a competent attorney to handle the process for you.  They will help you work through the bankruptcy filing so that you can repay your debts faster and you can get out of debt the best way for yourself.  If you want to qualify for Chapter 7 filing, total discharge of debt, you may need to go through Chapter 13, first.  The process helps you get a better handle of your credit situation.