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Are All Kinds of Bankruptcy the Same?


Bankruptcy, on the whole, is seen negatively, even though it can be a positive situation for some people. There are a few different options, all of which are different and affect your personal situation in a different way.

For example, Chapter 7 bankruptcy liquidates your assets, which means you're selling off the things you own to pay down debts. Chapter 11 bankruptcy, in comparison, allows you to restructure your debts, so you can pay them back in a more affordable way and come out of bankruptcy in a good financial position. This contrasts with Chapter 13 bankruptcy, which requires you to be on a 3 or 5-year plan to pay off your debts.

The speed of a Chapter 7 bankruptcy makes it something people consider, but it can be detrimental to your credit score. A Chapter 7 bankruptcy takes only around six months at the most, but you'll lose some of your personal property.

Chapter 13 is different because you keep your property. However, you need to make payments on time for the next three to five years.

Chapter 11 bankruptcy is often chosen by small businesses that need to refinance or restructure their debts and income. Reducing liability and increasing the stream of income is key. Many of these businesses continue to run while they are in bankruptcy and emerge to continue running the business in the future.

In all three kinds of bankruptcy, there could be ways to eliminate some of the past debts so that you can get a fresh start without paying back everything you owe. This sets you up for a stable financial start that you can work with instead of against.

Source: FindLaw, "Is Bankruptcy a Good Idea for You?," accessed Oct. 29, 2015