Different Types of Bankruptcy: Advantages and Disadvantages
There are three types of bankruptcies:
- "Chapter 7" - All assets are liquidated, except those that are exempt in your state (possibly a home, car, clothing, household appliances, life insurance, pension, and work-related tools).
- "Chapter 11" - Intended largely for businesses. Designed to allow a business to continue operating while repaying creditors through a court-approved plan.
- "Chapter 13" - If you have unsecured debts of less than $269,250 and secured debts of less than $871,551, you may be entitled to this type of bankruptcy protection, which allows you to keep certain property while you pay off your debts under the supervision of a court-appointed trustee.
On the downside, it's not a "get out of debt free" card. Here are some of the disadvantages of declaring bankruptcy:
- You need to file the claim and pay a fee. You may also need to pay a bankruptcy lawyer , and it can be difficult to find a good one, since some try to maximize their profits by handling cases as quickly as possible instead of giving your bankruptcy the attention it deserves.
- Some debts cannot be eliminated by declaring bankruptcy, including taxes, student loans, alimony, child support, debts that resulted from fraud or willful injury and some property settlements, fines and penalties.
- Your bankruptcy will remain on your record for up to ten years. This may make it difficult or impossible to obtain a credit card or a loan.
To learn more about what happens if your company declares bankruptcy, read this article.