Whether you're considering filing for bankruptcy or have already filed, it's important to consider the advantages and disadvantages of the bankruptcy process. There are several different types of bankruptcy, including Chapter 7, Chapter 11, and Chapter 13.
Chapter 7 bankruptcy
Among the disadvantages of Chapter 7 bankruptcy are the loss of credit cards, loss of possessions, and a lower credit score. Depending on your debts, the bankruptcy process can result in losing your home, vehicle, and other assets. It can also make it difficult to obtain new credit in the future.
A Chapter 7 bankruptcy will remain on your credit report for up to 10 years. This can be frustrating, as it may affect your ability to get a mortgage. However, it is also an effective way to deal with back taxes. If you file for Chapter 13, you can reduce the principal balance on some debts, and wipe out some tax debts.
The bankruptcy means the test is designed to prevent abuse of the bankruptcy code. The test calculates your disposable income, which includes your income and expenses. If your disposable income is too high, you will not be eligible for a discharge. However, if your disposable income is too low, you may be able to file for Chapter 13.
Another disadvantage of Chapter 7 bankruptcy is the loss of certain non-exempt assets. These assets can be sold in order to pay your creditors. Some assets are protected by state and federal exemption laws, such as your home. However, other possessions may be sold during the liquidation process.
Chapter 13 bankruptcy
Getting rid of debt is a major advantage of filing for bankruptcy, but there are also a number of disadvantages. For instance, a person can lose his or her home or assets, if the debtor fails to make payments. Moreover, the bankruptcy will affect future credit, which could make it difficult to obtain new credit.
In order to qualify for bankruptcy, you must pass a means test. This test helps to ensure that you cannot afford to pay your creditors. Your income must be below the median income in your state. It is also important to prove that you are unable to cover your basic expenses.
In addition, some forms of unsecured debt are not eligible for discharge. You can get a discharge of student loan debt, but it won't eliminate alimony obligations or fraud debt.
The amount you have to pay to your creditors will depend on the income you earn. If your income is below the median, you may be able to get a 36-month plan. If your income is above the median, you can get a 60-month plan. This means that your debts will take longer to pay off.
Another disadvantage of filing for bankruptcy is that your credit score will be impacted for seven years. This will prevent creditors from sending letters and collection calls.
Chapter 11 bankruptcy
Among the advantages of Chapter 11 bankruptcy is that the debtor has the opportunity to reorganize its debt obligations and avoid debt payments. However, there are disadvantages to this type of bankruptcy as well.
During the reorganization process, the debtor maintains control over the assets of the business. However, a business owner does not have the right to make certain business decisions without court approval. This may include selling assets, hiring professionals, or obtaining credit.
Business owners must also be aware that in most cases, Chapter 11 reorganization is a much more expensive process than liquidation. This is because the debtor must pay claims in full with interest over a shorter period of time.
Also, a business may be unable to secure loans after filing for bankruptcy. Depending on the type of business, this may mean that the debtor does not have the financial resources to carry out the business. In some cases, leases can also impose financial burdens on businesses.
However, a business that files for Chapter 11 bankruptcy can still obtain emergency relief to help it continue operations. This can be particularly important for small business owners who run their business on a month-to-month basis. The relief also gives vendors and employees peace of mind.
The most common disadvantage of Chapter 11 is that a business owner loses control over business decisions. The bankruptcy court oversees business decisions and can impose or overrule creditors' objections to a plan.
Remember to be clear with all the information regarding bankruptcy before proceeding to do so. A bankruptcy attorney in Harrisburg, PA can walk you through each step of the bankruptcy and help you file for it. It is not something to be taken lightly and professional help is needed.
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