The Different Bankruptcy Types And When You Should File For One

The Different Bankruptcy Types And When You Should File For One

Bankruptcy is a word that strikes fear into the heart of many business owners. However, bankruptcy can be an opportunity to start over and make a fresh financial start when executed correctly.

This blog post discusses various types of bankruptcy and the different scenarios you may come across.

What is Bankruptcy?

Bankruptcy is a legal remedy for an individual or organization that cannot repay its debts to creditors. When a person files for bankruptcy, all their assets are turned into cash to pay off the outstanding debt they owe. However, this does not affect secured accounts like a mortgage loan because it is backed by collateral.

Professional companies like Versa Business Systems can help you discover options to avoid bankruptcy.

Different Types of Bankruptcies

1. Liquidation

Also known as Chapter Seven or straight bankruptcy, this type is the most common among individuals. In this case, all your assets are liquidated to repay any outstanding debt you owe – it includes unsecured debts like credit cards and other lines of credit.

2. Repayment Plan 

This type of bankruptcy is considered a reorganization, where you will be required to repay a portion of your debts – not all. It may last anywhere from three years to five years, depending on the court’s ruling and how much debt you owe in total.

Should You File for Bankruptcy?

There are different repercussions of filing for business bankruptcy. If you file for liquidation, your business will be shut down, and its assets will be liquidated. If you file for a repayment plan, also known as Chapter 11, you can continue your business operations until you create a new payment plan for the creditors.

When Should You File for Bankruptcy?

Filing for bankruptcy is not a pleasant experience. Still, it can help businesses get the noose removed from around their necks, but it should only be used as an option when nothing else works, like getting no more loans or capital investments. For individuals filing Chapter Seven straight bankruptcy, two main factors contribute to whether or not creditors would take them back: their employment status (if employed full time) and income level (amount of annual salary).

Will Business Bankruptcy Affect Me Personally?

If you own a sole proprietorship or partnership, any business debt not paid off will be transferred to your financial records. This means that if one of these situations occurs to the company – they file bankruptcy, close down shop without paying creditors – it can lead to problems for yourself personally when filing taxes because you are responsible for this debt!

You can avoid bankruptcy in some cases by availing the services of Versa Business Systems in Florida. We offer various business loans and also introduce companies to numerous small business funding options. Run your dream business using the quick and easy funding options we provide and apply for funding now!