It’s rare that a person or business wants to seek bankruptcy protection but it’s an option that all financially challenged parties should consider because it may provide a fresh start to one’s financial life. It could be a way to move on from serious difficulties and transition to a new chapter for an individual or business.
There’s no shame to bankruptcy protection. The country’s founding fathers believed that bankruptcy was so critical to the new nation that in Article One, Section Eight of the Constitution Congress is explicitly empowered to establish bankruptcy laws that would apply throughout the United States.
Bankruptcy is a legal tool that may be appropriate for you or your business to help you address your financial obligations. Many well known businesses have received bankruptcy protection including Major League Baseball teams (the Chicago Cubs and the Texas Rangers), Texaco, Marvel Comics, United Airlines and General Motors. Mark Twain, Burt Reynolds, Walt Disney and Presidents Abraham Lincoln and Ulysses S. Grant all went into bankruptcy.
There are different types of bankruptcy which apply to businesses and individuals.
- Chapter 7 can apply to both people and businesses. For individuals the court would appoint a trustee, the trustee would sell off “non exempt” assets, allow the individual to retain “exempt” assets (personal property considered necessary for modern life), pay creditors what’s available and then discharge the person from obligations to pay what remains. For businesses there is no “exempt” property and all assets are used to pay off debts and the business ceases to function.
- Chapter 11 is the only option for a business trying to restructure and continue operating if it’s owned by a partnership, limited liability company or corporation. The Chapter 11 process can be expensive and time consuming but may be the right choice if reorganization is the goal.
- Chapter 13 bankruptcy is known as “wage earner” bankruptcy because the individual needs a reliable income so you can repay some portion of your debt. A repayment plan stating how debts will be paid back over three to five years needs to be approved by the court. Only individuals can seek Chapter 13 protection.
The bankruptcy code is complex and has many exceptions to general rules. The right type of bankruptcy protection varies depending on the situation, assets, debts and goals of the person or business. If debts are overwhelming you, your family, your business or the business that you manage, contact The Bloom Firm today so we can start the conversation that may result in a fresh financial start for you or your business.