How Many Types of Bankruptcies are There?
For Suzanne, who has found herself in financial distress as a result of circumstances beyond her control, finding a way out of trouble seems almost impossible.
From being ill, which rendered her unable to work for a lengthy period of time, to her divorce, finding herself filing for bankruptcy has been quite a rollercoaster ride for her.
She has had to inform herself about the different types available.
Bankruptcy is a legal process that enables individuals or business entities to restructure their debt repayments and to pay their creditors.
She should regard it as a last resort because of the expense.
There are four different types of bankruptcies.
This is generally known as traditional bankruptcy, whereby assets are sold and the proceeds made from this are used to pay creditors off. It is usually reserved for lower income levels.The process often offers a fast solution within less than six months.
This is mainly for entities that want to keep working while repaying those they owe through a reorganisation plan, approved by a court.
This is typically for farmers with a consistent form of income on an annual basis.
It can be completed in 3-5 years, while a trustee is appointed to oversee everything as well as payments.
To qualify for this solution, which is one of the newer types of bankruptcies, liabilities must exceed assets by a large margin.
Debts can be restructured. This option lets you get rid of part of your debt in order to manage payments.
If a court approves, payments are made through a trustee. Creditors meet and try to reach consensus about fair payments. Over a period of 3 to 5 years, creditors’ payments are prioritised.
A benefit is that during this process you get to keep valuable assets. In addition, you are protected from lawsuits.
Suzanne needs to become familiar with all options available for her, because this will determine the type of bankruptcy for which she qualifies. She can use this knowledge to plan ahead.