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Bankruptcy education is one of the key steps in learning how to build a strong financial foundation. While bankruptcies and foreclosures are down across the country, they’re still a source of financial ruin for many families. This first thing to know is that there are five unique types of bankruptcy, according to the United States Bankruptcy Code. Two are personal, two are commercial, and one, Chapter 9, we’ll talk about later.

Personal Bankruptcy

Nearly every modern country features laws for individual debt relief. In the U.S. this takes two potential forms, Chapter 7 and Chapter 13.

Chapter 7

Chapter 7 bankruptcy provides for liquidation. After Chapter 7, all of the debtor’s nonexempt assets are sold (usually at auction) or reduced to cash (i.e. ‘liquidated’). This cash is then distributed to the creditors. You should only consider filing for Chapter 7 if there is no hope of ever being able to repay your creditors. Chapter 7 bankruptcy is usually exercised by individuals, but commercial enterprises may apply.

One of the benefits of filing under Chapter 7 is that most states allow you a decent number of exemptions. Also, you’ll be able to keep all of the salary and wages that you earn after filing. Chapter 7 bankruptcy will not relieve you of your child support, alimony, or student loan obligations. Although in some cases Chapter 7 may be how to build a strong financial foundation, there are certainly some downsides to consider. Among them, you can lose your house and it will affect your credit for at least 10 years.

Chapter 13

Chapter 13 bankruptcy is for employed people who are in over their heads with debt. To file Chapter 13, you’ll need to present proof of employment and a payment plan to a judge. The judge can then approve your plan to reduce the amount you owe and spread your obligations out over a period of up to five years. This allows you to pay creditors less each month. Chapter 13 is a good way to give yourself some relief without the risk of losing your house or other valuable assets.

All of the above make Chapter 13 a choice for how to build a strong financial foundation. It’s also worth noting that filing for Chapter 13 bankruptcy will stop creditors and collections agencies from calling you at work and harassing your friends and family.

Commercial Bankruptcy

Having considered the pros and cons of personal bankruptcy, and examining its two forms, let’s focus on commercial bankruptcy education. There are three types of commercial bankruptcy:

Chapter 11

Chapter 11 bankruptcy primarily applies to commercial enterprises that wish to continue business operations while repaying creditors through a court-approved reorganization plan. Rather than filing for Chapter 7, companies can actually survive under Chapter 11 and lay out a plan for themselves to eventually return to profitability. This is done through reducing their debt obligations and spreading their payments out over a longer period of time. This is an excellent way for businesses to build a strong financial foundation for the future.

Chapter 12

Chapter 12 bankruptcy is very similar to Chapter 11, but it is specifically made for people in the family farming business. Filing under Chapter 12 allows family farmers to continue to operate and either reduce their obligations or pay them back over a longer period of time.

Chapter 9

Only government organizations like towns, villages, municipalities, and school districts can file for Chapter 9 bankruptcy. It effectively cancels the organization’s debts and enables them to reorganize. If your debt is spiraling out of control and you need help, it’s time to contact the largest consumer bankruptcy filing firm in Florida. We are here to make sure you’re properly educated about bankruptcy and to help you build a strong financial foundation.

Call the Law Offices of Patrick L. Cordero for a free consultation today at (305) 445-4855.