3 Questions You Should Ask Yourself Before Filing for Bankruptcy
Most small businesses, especially those just starting, are working on a limited budget, but what happens when business slows dramatically? Unfortunately, just because your income stopped does not mean the bills stop coming in.
Statistics show that only half of the small businesses last longer than one to five years, with one-third lasting 10 years or longer. Those statistics are worrisome enough without the added stress of the recent shutdowns.
If you are like most Americans, creditors start calling, sending letters, and harassing you in general after a few missed payments. If you ignore the calls and letters instead of getting better, the debtors become more determined to get their money.
At this point, you begin to start thinking about bankruptcy. While bankruptcy is a viable choice, you should ask yourself a couple of questions before making a decision. There may be steps you can take to avoid declaring bankruptcy, but at the end of the day, bankruptcy is the only plausible option. When that’s the case, it’s always good to have a dependable and experienced law firm near you.
Chapter 7 Bankruptcy versus Chapter 13 Bankruptcy
With Chapter 7 bankruptcy, some of all of your assets are sold to pay off debtors. Chapter 7 is best when you have a substantial amount of debt, and your assets can be sold to pay a large portion of the debt. Both individuals and businesses can file for Chapter 7 bankruptcy.
Chapter 13 bankruptcy is a reorganization of debt and can only be filed by individuals or sole proprietors. When you file for Chapter 13 bankruptcy, the court puts you on a payment plan so you can keep your assets. The bankruptcy is discharged once all debts are paid.
1. Do I Qualify for Bankruptcy?
To qualify for chapter 7 bankruptcy, you have to pass a means test. The means test shows the court if you are unable to pay your bills. The means test compares your income versus your expenses; the higher your income, the less likely you qualify. Some people who do not qualify for Chapter 7 may be eligible for Chapter 13, depending on their state’s law.
2. Will I Lose All of My Assets?
What assets you lose depends on multiple things. First, what are your assets? If you own numerous homes, you will likely have one seized. If you owe a mortgage on your home, there’s a chance the lending bank will seize it and sell it to pay off part of your debt.
Whether or not you lose your vehicle is dependant on your state’s law. Some states have an exemption based on how much your car is worth. For example, if your state allows a $4,000 motor vehicle exemption and your vehicle is worth less than $4,000, you get to keep your car. If it is over $4,000, they sell your vehicle, give you the $4,000 and keep the rest, paying off creditors.
Other assets you may have, such as boats, acreage, jewelry, etc., is dependant on the state law and the value of the assets.
3. Will Bankruptcy Stop Creditors From Harassing Me?
We’ve all been there… The annoying phone calls of creditors asking for money you’re constantly telling them you don’t have. Those calls are indeed annoying but they can get to a point of harassment as well. The good news is that once you file for bankruptcy, creditors have to stop harassing you. Preventing the harassment alone will help to lower your stress. Having creditors calling constantly demanding payment is awful.
Filing for Individual Bankruptcy
Depending on how your business is set up, you can file for personal bankruptcy, which also will discharge your business debt. Those who have a larger company may have to guarantee loans. If bankruptcy is needed in this situation, both the business and the individual can file for bankruptcy to discharge the debt. Recently during the pandemic, this is becoming more common as companies are closing.
There is a lot that goes into filing for bankruptcy, regardless of what chapter you choose to file. Having the important questions to ask when you meet with an attorney will save you from a world of wonder later on down the line.