One of the most common misconceptions about bankruptcy is that it’s a once size fits all solution. However, the reality is that there are many types or chapters to be precise. The most common that you might hear about is chapter 7 bankruptcy. But once again, chapter 7 can be very different if you are an individual or a business. Therefore, the following includes a few information regarding how chapter 7 works for individuals and businesses.
What exactly is Chapter 7 Bankruptcy?
Before we dive in too deep into the difference regarding bankruptcy filing with individuals and businesses, first, you need to know the basics. Chapter 7 bankruptcy, aka straight or liquidation bankruptcy, is often the last resort for struggling individuals or businesses. You file this when you absolutely cannot pay your monthly payments as well as your cost of living. Going through this process essentially puts a reset on your finances. However, you are still going to face very serious consequences for it. Your assets might be possessed to pay for outstanding debts that cannot be wiped out, and your credit score will be severely damaged for years to come.
Chapter 7 for Individuals
When it comes to filing, it can be a rather daunting experience for those who’ve never gone through it, especially when they don’t know the basics. In regards to assets, most cases will not take away important things such as cars, computers, and your home as these are deemed essential for working and living. Therefore, unless you’re a millionaire with valuable paintings, there’s little to no chance that creditors will want any of your other non-essential possessions. Let’s get to the debt forgiveness. Although chapter 7 does relieve you from most deaths, there are few that bankruptcy law states no individual can remove from their record. This would involve things such as alimony, child support, student loans, and taxes, to name a few. In summary, the pros are clear. You are forgiven for many of the debts you owe and gets those aggressive lenders off your back. The cons, on the other hand, include destroying your credit score, losing luxury items such as boats or additional homes, and of course, won’t dismiss certain expenses such as student loans and alimony.
Chapter 7 for Businesses
Although going filing for Chapter 7 can be a good option for businesses that are going out of business, it is often not used as much. The reason behind this is because when chapter 7 is filed, it also opens the door to potential lawsuits regarding the transferring of debt from business to individual. So, how does it differ from an individual? Well, it comes down to two main things regarding the process. First is that unlike an individual, companies are going to sell off most of their assets in order to repay lenders. Secondly, unlike an individual, debt is not actually wiped out because there is no need to, the business is going out of business. However, this leads to having the debt come down to the owner of the business, which lenders can then file a lawsuit to collect.