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Consumer Bankruptcy - Chapter 11

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Chapter 11 Bankruptcy

Chapter 11 bankruptcy - named after the US bankruptcy code 11 - is most commonly declared by companies, large and small - individuals generally apply for Chapter 7 or 13 although in recent years more people have chosen Chapter 11.

Recent changes in the law have made Chapter 11 more appealing to individuals - a person who files Chapter 11 still has some control over such things as mortgage foreclosures and IRS issues. Around 1.6 million individuals declare bankruptcy every year – divorced women make up the biggest number. Filing Chapter 11 has become more common with people who have large debts

Not only is Chapter 11 the most complicated of all the bankruptcy options – it’s also the most expensive. There is no limit on the amount of debt involved and it’s the usual method that businesses choose. A business may be a huge multi-million dollar company or a small family owned business.

The biggest advantage of bankruptcy is that the process offers the chance to make a fresh start. You aren’t liable for previous debts or liabilities as long as they were included in the bankruptcy proceedings. If you declare bankruptcy, you will usually still keep your house and car and any earnings after bankruptcy has been declared – property and wages – are then exempt from claims of pre-bankruptcy creditors.

Perhaps the biggest disadvantage is that your credit rating will be adversely affected by bankruptcy – a bankruptcy may appear on your credit report for 10 years after the date you filed. It can be understandably difficult to obtain credit - a car loan, mortgage or credit card - for several years, if you are bankrupt. And you cannot file for bankruptcy again for another six years.

It’s a matter of public record if you declare bankruptcy and people can access this information fairly easily. Many people find to their surprise, that declaring bankruptcy isn’t a free process – you will incur various administrative and court costs, as well as any fees for an attorney. And you may still be liable for such things as taxes, student loans and child support.

So how does a person actually declare bankruptcy? The first step in filing Chapter 11 is filing a petition with the court, and then devising a realistic plan to deal with debts. A business or individual will also need an attorney to help with filing all the paperwork correctly. 

Depending on the complexity of the case, the time taken for someone to emerge from bankruptcy varies considerably – it could be anything from several months to several years. During that time, if a person’s creditors cannot find any other solution, they may sell the person’s assets. 

Declaring bankruptcy can be emotionally difficult as well as financially – it’s never an easy choice to make. For many people though, it really is the only way to effectively deal with increasing debt.

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