When a bankruptcy attorney and their client consider the available options, there are two types of petitions they can consider. First, there is liquidation, a process that's commonly called Chapter 7. The second possibility is restructuring under Chapter 11 for most businesses or Chapter 13 for most individuals. Each approach has its pros and cons so let's take a look at some of them.
Pros of Liquidation
The biggest upside to liquidation is that the process tends to be fairly fast. You'll file a petition for relief, and the court will determine whether your finances are bad enough to justify granting it. The majority of Chapter 7 cases are concluded within months.
Another upside is that once the hearings are done and everything is liquidated, that's usually the end of the subject. Your remaining unsecured debts will be discharged.
Cons of Liquidation
The big downside to liquidation is that a fair amount of your assets may be sold to pay something to your creditors. Also, the process isn't meant to deal with secured debts, such as car loans and mortgages.
Pros of Restructuring
If you're sure you can make payments with a reduced debt load, restructuring will likely help you hold onto most or all of your assets. You'll have to submit a repayment plan that proposes that your creditors take a haircut, but you'll likely still pay the majority of what you owe. If you just need time to your finances under control, restructuring your debts is an option a bankruptcy lawyer may encourage you to consider.
One big plus to restructuring is it leaves the door open to liquidation. If your financial situation worsens and repayment becomes impossible, you can still petition the court for Chapter 7.
Cons of Restructuring
The court may not allow you to pursue a Chapter 11 or 13 filing. Following a review of your finances and debts, a judge may determine you make too much money and dismiss your case. Also, they might determine you make too little money and tell you to refile under Chapter 7.
Speed is not a big selling point of restructuring. Presuming you pay in full and on time, finishing a repayment plan will typically take three to five years.
Why Not Both?
You may be able to file to liquidate unsecured debts and subsequently petition to restructure your secured debts. These are usually done one right after the other.
To learn more information, reach out to a bankruptcy attorney near you.Share