Bankruptcy is a common and effective form of handling debt on both a personal and professional level. Generally speaking, a company or individual in Alabama can choose between Chapter 7 bankruptcy or a Chapter 11 filing, but they work very differently. Understanding what kind of bankruptcy filing works best for a given situation is an effective way to begin to plan for a better financial future.
The basics of each type
Chapter 7 bankruptcy is arguably the most common form of bankruptcy and is sometimes referred to as “liquidation.” This involves working with an appointed trustee to sell off assets to pay down creditors, and it can work for both a business and an individual. Chapter 7 prioritizes paying off secured debt, such as loans or other specific assets, with any remaining assets and cash going toward unsecured debt like stocks. Once all assets are sold, the remaining debt can be forgiven.
Chapter 11, on the other hand, is classified as a reorganization of debt. It is arguably the most complicated form of bankruptcy and is often utilized by businesses rather than individuals. It involves restructuring debts by negotiating with creditors, selling assets and cutting costs while the business remains functional. This occurs under the supervision of the bankruptcy court, which ensures all remaining debts are paid back through the company’s future earnings.
Finding help and support when faced with these situations
Chapter 7 bankruptcy and Chapter 11 reorganization can both seem daunting to an individual or business in financial jeopardy as a result of debts. However, with the support of a dedicated bankruptcy attorney, it is possible for an Alabama resident or business to recover from financial hardship. Without the constraints of debt, anything is possible.