A Brief Overview of Several Forms of Bankruptcy Protection

A Brief Overview of Several Forms of Bankruptcy Protection

There is a seemingly endless variety of ways in which an individual or small business might end up in dire financial straits. For an individual, job losses, unanticipated expenditures on necessary home or automobile repairs, and illness or serious injurysustained in an accident caused by another party’s negligence represent only a small portion of the potential sources of disaster. For corporate interests, a fluctuating economy, shifting consumer sentiments, litigation brought by competitors, and even crime might be a source of difficulty. Under some circumstances these factors may inhibit your ability to satisfy the terms of your agreements with creditors and service providers, raising the need for consideration of a bankruptcy filing.

Though bankruptcy is not the best option for every debtor or business, there are many circumstances in which it may offer much needed relief from aggressive collection efforts. The measures taken by a creditor or collection agency to compel your payment of an outstanding debt can range from strongly worded letters and harassing phone calls to the filing of a lien against you or your property and the pursuit of a default judgment. These actions can haunt you by tarnishing your credit report and reputation for years to come. Bankruptcy protection can prevent this from happening.

Chapter 7

Chapter 7 bankruptcy is perhaps the most extreme in terms of the demands that it makes of a filer, but it may also grant the greatest relief from debt pressure. Key points include:

Liquidation of some assets which are not covered by exemptions

Proceeds generated from a bankruptcy sale are divided and distributed to creditors

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Successful completion of a bankruptcy results in the discharge of most debts

A Chapter 7 filing effectively terminates a business as a going concern

Chapter 11

Chapter 11 Bankruptcy is most frequently sought by corporations, but is also available to individuals. Commonly referred to as a “reorganization” bankruptcy, Chapter 11 does this. Important aspects are:

Debtors propose a restructuring of their debts and business operations where appropriate

Filers gain access to special lending rates that grant them new negotiating power with creditors

Businesses may continue to operate while in Chapter 11 bankruptcy

Failure to comply with the terms of a bankruptcy plan may result in forced conversion to Chapter 7

Chapter 13

Chapter 13 is similar to Chapter 11 in some ways, and very different in others. Notable details include:

Available only to individuals who are actively employed

Debtors propose a 3-5 year payment plan for outstanding debts

Foreclosure proceedings may not begin or continue during the bankruptcy period

To Learn More

To gain more information about these and other bankruptcy options, contact the Arizona bankruptcy lawyers of the Harmon Law Office, L.L.C.