Bankruptcy is a legal process that gives individuals and businesses facing insurmountable debt a chance to start anew. It provides relief by eliminating or restructuring debts, enabling them to regain financial stability. If you're facing financial difficulties and considering filing for bankruptcy, a Memphis bankruptcy lawyer can help assess your financial situation and understand the available options.

This article will dive into various types of bankruptcy and their impact on personal and business finances.

Chapter 7 bankruptcy

Individuals who pass the means test, which compares their income to the median income in their state, may be eligible for Chapter 7 bankruptcy. They may petition for Chapter 7 bankruptcy if their income falls below the median.

Eligibility for Chapter 7 bankruptcy

To qualify for Chapter 7 bankruptcy, individuals must pass the means test, which compares their income to the median income in their state. If their income falls below the median, they become eligible to file for Chapter 7 bankruptcy.

The process of Chapter 7 bankruptcy

The journey to Chapter 7 bankruptcy commences with filing a petition with the bankruptcy court. Debtors provide detailed information about their assets, debts, income, and expenses. An automatic stay is triggered upon filing, preventing creditors from pursuing debt collection.

Chapter 13 bankruptcy

Chapter 13 bankruptcy, known as "reorganization bankruptcy" or the "wage earner's plan," allows individuals to repay their debts over a span of three to five years. This option is suitable for those with a regular income who wish to retain their assets while fulfilling their financial obligations.

Eligibility for Chapter 13 bankruptcy

Chapter 13 bankruptcy requires a steady income that enables individuals to fund a repayment plan. Their total secured and unsecured debts must also fall within the limits of bankruptcy laws.

The process of Chapter 13 bankruptcy

Chapter 13 bankruptcy involves crafting a repayment plan that outlines how debtors intend to fulfill their obligations over the designated period. The plan is then submitted to the bankruptcy court for approval. Once approved, debtors make regular payments to a trustee, who allocates the funds among creditors.

Chapter 11 bankruptcy

Chapter 11 bankruptcy primarily caters to businesses and corporations, but individuals with substantial debts can also file for it. It allows businesses to restructure their debts and operations while continuing their business.

Eligibility for Chapter 11 bankruptcy

Chapter 11 bankruptcy is available to businesses of all sizes, including corporations, partnerships, and sole proprietorships. There is no debt limit for filing under Chapter 11, making it a viable option for larger businesses facing significant financial challenges.

The process of Chapter 11 bankruptcy

The Chapter 11 bankruptcy process commences with filing a petition with the bankruptcy court. The debtor continues operating as a "debtor-in-possession" and has the exclusive right to propose a reorganization plan within a specified period.

Conclusion

Bankruptcy is a legal mechanism to alleviate the burden of overwhelming debt for individuals and businesses. Understanding the different types of bankruptcy, their processes, eligibility criteria, and implications is crucial for those considering this option. Evaluating alternatives, seeking professional advice, and making well-informed decisions contribute to the best possible outcome for financial recovery.