Minimizing the risk associated with the chance of uncollectible accounts is a long-standing issue for all entities, especially SMEs that do not have a credit control department or function. Debts such as unpaid invoices affect your cash flow but also tie up other resources that could be sunk in other business areas.
They also tend to be quite personal since business owners find dealing with customers who do not pay on time stressful. In this guide, we have been able to scour the most common types of debtors and offer free tips and guidance on bankruptcy assistance for business owners through free bankruptcy help California that will give them peace of mind while dealing with the mentioned types of debtors.
Types of Debtor Bankruptcy
The United States Bankruptcy Code and the Federal Rules of Bankruptcy Procedures outline several kinds of filings for bankruptcy. Each chapter under bankruptcy has an objective, which is liquidation, whereby a few assets are turned into cash to pay back creditors, or restructuring, whereby payment of some or all of the debts owed is agreed upon.
1) Chapter 7
Also known as ballooning, section 7 permits individuals or business entities to surrender their assets that cannot be exempted and be free from many obligations. To be eligible, such individuals must pass the means test –their income should not be higher than the median income in their state.
However, not all debts are eligible for discharge, and discharge is not automatic in Chapter 7 filings. Individuals who successfully discharge creditors’ claims get relief in respect to the claims.
2) Chapter 11 Bankruptcy
Most businesses file for Chapter 11 bankruptcy to restructure and remain in operation. By filing for Chapter 11 bankruptcy, a business can formulate plans for profitability, reduce expenses, and explore avenues to generate income. Their preferred stockholders, if they exist, might still be receiving payments, but common stockholders will be at the end of the queue.4
Raising prices and adding more services, such as housekeeping services, have been seen in Chapter 11 by bankrupt-based businesses, which was meant to make them more profitable. The court ensures that the business continues with its operations uninterrupted while developing a plan for paying off debts. In extraordinary situations, private individuals can also declare Chapter 11 bankruptcy.
3) Chapter 13
In the same vein as Chapter 11, Chapter 13 applies to Those who cannot manage their debt load and want to restructure it. Creditors will receive repayment on some amount, and others will be paid back in full with interest. Generally speaking, the period of repayment ranges from three to five years.
Debtors filing for type 13 bankruptcy have to show evidence of income which cannot be less than a certain level. Also, there are limits with regard to the amount of initial debt that a debtor can take on. One of the major benefits of Chapter 13 is that the bankruptcy courts allow the debtors to keep their homes, and the risk of having the homes foreclosed is pretty low.
Conclusion
In looking at the merits of bankruptcy, it can be noted that some forms of bankruptcy can help dissolve debts that the debtor cannot deliver on and, in the process, allow the debtor to get a fresh start. One of the disadvantages is that having a bankruptcy order in the history of credit for an individual is a black mark, and such individuals find it hard to access loans in the future.
Before commencing with the application for bankruptcy, try to consider all other possible avenues that might resolve your indebtedness, including a debt consolidation plan or a renegotiation with the creditor. Try to seek the assistance of a financial counselor who will determine what your workable options are and how these are applicable in your circumstances.