Bankruptcy is something no one wants to experience. However, it is a common occurrence, with anywhere from 600,000 to two million Americans filing for bankruptcy every year.
Below, we discuss the circumstances that would make it appropriate for you to declare bankruptcy.
It’s important to remember that declaring bankruptcy is a serious event. A bankruptcy will remain on your record for seven years and will make it difficult for you to secure new lines of credit or get housing.
A common misconception is that declaring bankruptcy will wipe out all your debts. In fact, it only wipes out certain debts. The debts it does not wipe out include student loans, child support and alimony, income taxes, debts to government agencies, and more.
Many people who declare bankruptcy have been thrown into financial turmoil by events outside of their control, such as sudden medical bills or an unexpected job loss. In this situation, declaring bankruptcy may have been the only option.
Individuals or businesses may file for bankruptcy. The two main types of bankruptcy for individuals include:
- Chapter 7: This is designed for people who cannot afford to pay their bills. In order to qualify for this type of bankruptcy, you must earn less than the median income for a family your size in your state.
- Chapter 13: This requires that you have a steady source of income and unsecured/secured debts less than a certain amount.
One of the main types of bankruptcy for businesses, on the other hand, is Chapter 11. Chapter 11’s new subchapter, known as Subchapter V, makes filing for bankruptcy easier for small businesses under a certain amount in debt. With the passing of the CARES Act, Congress recently increased the maximum indebtedness for small business debtors from $2.7 million to $7.5 million. The debt limit increase takes effect for cases filed from March 27, 2020 through March 27, 2021.
Depending on the economic recovery, or lack thereof, Congress may or may not allow the higher debt limit after March 27, 2021. As a result, small business owners, who are looking at various options in relation to their debt management, should meet with an attorney who has experience with Chapter 11 bankruptcies.
At Pearson Butler, our bankruptcy department has decades of bankruptcy experience, including Chapter 11 and Chapter 7 bankruptcy options. Our attorneys can advise small business owners regarding Subchapter V of Chapter 11, also known as “Chapter 5 bankruptcies.”
If you have exhausted all other options and you would like to file for bankruptcy, our team can walk you through the process and help you understand its advantages and disadvantages.
Contact Pearson Butler today at (800) 265-2314 to schedule a consultation with our team.