The federal government offers business owners and individual citizens the ability to regain financial footing through the bankruptcy process. But if you owe recent income tax debts, the only way to find debt relief is to negotiate a repayment plan directly with the taxation agency, warns the Internal Revenue Service. Also, federal bankruptcy judges will not discharge your government-issued student loans unless you are severely disabled or were allowed to attend classes without a high school equivalency diploma or academic placement test.
Business Chapter 7
Business Chapter 7 bankruptcy requires the assistance of an attorney, warns the U.S. Securities and Exchange Commission. This type of bankruptcy permanently eliminates all business debts but also closes the company's operations. Bankruptcy officials sell any business assets and distribute any profits to creditors and stockholders. In some cases, creditors and stockholders do not recoup their financial losses.
Personal Chapter 7
Filing personal Chapter 7 bankruptcy does not require an attorney's aid, but getting legal assistance may prove helpful. Chapter 7 permanently eliminates many pre-existing personal debts for people earning less than their state's annual median income level, but in many cases the debtor's assets are sold to offset creditor losses. Also, Chapter 7 will not affect child support, alimony and court fines. Pre-bankruptcy credit counseling is also required. A Chapter 7 case damages a consumer's credit ratings for 10 years from the date of filing.
Chapter 11
Chapter 11 combines business and personal obligations into a partial debt repayment plan. This type of bankruptcy requires the help of an attorney, whether the debtor is self-employed or owns a company. Many businesses can stay afloat after Chapter 11, as the filer can keep virtually all business and personal assets. Chapter 11 cases harm personal credit ratings for seven years from the date of filing.
Personal Chapter 13
Chapter 13 creates a partial debt repayment plan, but only for personal debts. It usually takes three to five years to complete Chapter 13, and during this time the debtor cannot get any new credit without a bankruptcy judge's consent. As of 2011, people with more than $360,475 in unsecured debts and more than $1,081,400 in collateral-secured debts could not file Chapter 13, according to the United States Bankruptcy Court. A Chapter 13 plan damages a consumer's credit rating for seven years from the date of case filing, even if a judge denies the request.
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