Most businesses are dependent on loans to continue with their business. But what happens even after taking a loan to smoothen up financial flow, business accrue a loss? Well, that is when the businesses are forced to declare bankruptcy. What is bankruptcy? How does it work, and what advantages does it cater? Let’s explore these questions.
What Is Bankruptcy?
According to bankruptcy lawyers from Lehn Law, Bankruptcy is a legal proceeding involving a person or a business that cannot carry on with their business or has no money to pay up their debts.
The process starts with filing a petition in court. Once the government accepts the petition, all the creditors’ actions are stopped. After that, the government takes the initiative to take control of all the debtors’ assets and sell them to pay up the debts.
Types Of Bankruptcy Filing
Depending on the types of loan debtors have taken, the bankruptcy falls under several bankruptcy laws. Given below are the laws that more or less cover all kinds of bankruptcy cases.
- Chapter 7 Bankruptcy: Chapter 7 bankruptcy covers the individuals or businesses with fewer or no assets to pay up their debt. In this bankruptcy, all debts dispose of unsecured debts, and secured debts are liquidated to pay up the debts. If the secured debt is not enough, the business or individual must go through financial education where the government helps them pay debts in installments.
- Chapter 11 Bankruptcy: This type of bankruptcy is mostly used by businesses. Here, the business’s goal is to reorganize its financial structure, stay in business, and once again become a profitable business.
- Chapter 13 bankruptcy: Bankruptcy 13 is similar to that of chapter 7; however, in these cases, the debtors have enough assets to pay up their debts. In fact, the debtors are allowed to have a payment plan to pay up the debts in a limited time period.
- Other Bankruptcies: While chapter 7, 11, and 13 are the most common type of bankruptcy cases. Apart from these three chapters, we all have chapters 9, 10, 12, and 15 bankruptcy.
Advantages Of Filing For Bankruptcy In 2021
Bankruptcy is caret in such a way that offers relief to the debtors who are unable to pay up their debts to the creditors. Listed below are some of the advantages that bankruptcy offers.
1. Automatic Stay Order
Filing for bankruptcy will automatically put a stay order on all the creditors’ activities and claims. It also prevents the creditors from calling you, suing you, and sending your letter about the debt’s claims.
2. Restrict Eviction From Necessities
Once you have filed bankruptcy, it puts a hold on all your eviction. This helps you carry on with your daily life, and the government helps you with payment plans.
3. Help With A Repayment Plan
Filing bankruptcy means you have no money right now to pay up your debts. The government will come to your rescue by allowing you to have a payment plan.
4. Your Credit Score May Improve
After filing for bankruptcy, your debt to income ratios will improve. This will give your credit score a boost for future loans.
5. Educate You Live Without Your Credit Cards
Bankruptcy will help you survive without the use of credit cards. This will educate you on best practices to live your life after the bankruptcy phase is over.
6. Help You Hold On Certain Assets
If you can file for bankruptcy at the right time, you will be able to safeguard some of your assets from liquidation.
7. Fresh Start
Most people file bankruptcy knowing that this will give them a fresh financial start. While this might not seem a major advantage, filing bankruptcy will leave you stress-free.
Although bankruptcy is meant to declare that you are practically poor and have no money to pay up your debts, most businesses take advantage of the bankruptcy to secure some of their business assets and have a fresh start. In fact, some businesses or individuals see this as an opportunity to reorganize their financial flows.