In some financial situations, the best option may be bankruptcy. Even when there is no other way out of the situation, bankruptcy may cost more than you think.
However, this method of resolving a bad financial situation should be used with caution as the price to pay for bankruptcy may be far greater than you realize.
Here are some tips for understanding the real cost of bankruptcy.
Chapter 7
Chapter 7 Bankruptcy is designed for individuals or couples wanting a fresh start. It is the most difficult to qualify for, but the fastest way to discharge all debt.
Filing a Chapter 7 petition involves a means test. This test is used by the court to determine if the person would have the ability to repay the debt that is owed back in the set amount of time by using one of the alternative chapters.
If the means test is not passed, bankruptcy is filed. The whole process lasts three to four months in duration. However, you may not be granted continued possession of your home and your car as these may be used for liquidation purposes.
Chapter 11
This form of bankruptcy is suitable only for businesses. It is one of the hardest forms of bankruptcy to file and one of the most expensive.
The petitioner will need to provide two different types of documentation to the court.
First, they have to come up with a plan for repayment to the creditors to be completed in a specified amount of time. Secondly, they will have to prove that there will be the means to do so. The creditors have the option of denying the plan.
Chapter 13
For an individual, this is the most common type of bankruptcy. Generally, it is also the swiftest. Also, assets are not forcibly lost through liquidation such as in Chapter 7.
The individual will submit a plan with the petition to make timely payments over the next three to five years. Generally, payments of 10 cents on every dollar outstanding are accepted. In other instances, it may be as high as 50 cents to the dollar owed.
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