Understanding the Different Types of Bankruptcy: Which Is Right for You?
When debts pile up, and the path forward seems unclear, bankruptcy can give you a fresh start. At Rushing Law Firm, PLLC, we’ve guided countless clients through tough financial decisions and clearly understand their options.
When you work with us, we strive to provide the guidance you need to determine whether bankruptcy is the right choice for your circumstances and which type of bankruptcy would serve you best. That decision begins with understanding the different types of bankruptcy and how they can impact your financial situation.
Types of Bankruptcy
Bankruptcy is not a one-size-fits-all option. Depending on your financial situation, it's important to choose a type of bankruptcy that best fits your needs. The most common forms of bankruptcy that individuals and businesses file include the following:
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is one of the most common forms of bankruptcy filed by individuals and families. It’s often referred to as “liquidation bankruptcy” because it involves selling off certain assets to repay creditors.
However, Arkansas’ bankruptcy exemptions may allow you to retain certain kinds of property, such as your home or vehicle, while discharging unsecured debts such as credit card balances, medical bills, and personal loans.
This option works best for those with limited income who cannot realistically pay back their debts. It usually takes around three to six months to complete, giving you a relatively quick way to start fresh financially.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is usually used by businesses; however, individuals with significant assets and debts that don’t qualify under Chapter 13 may also file.
This type of bankruptcy allows businesses to continue operations while reorganizing their debts and developing a repayment plan approved by creditors. Given its complexity and cost, Chapter 11 is less common for individuals but can be a practical tool for business owners looking for a way to stay afloat.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as “reorganization bankruptcy,” is better suited for individuals or families with a steady income who want to keep their property while catching up on unpaid debts.
Instead of liquidating assets, Chapter 13 involves creating a three to five-year repayment plan, allowing you to pay back priority debts like unpaid taxes or mortgage arrears in manageable monthly payments.
This type of bankruptcy is ideal if you’re behind on your mortgage but want to avoid foreclosure or if you have non-exempt assets you’d prefer not to lose through Chapter 7 bankruptcy. Once the repayment plan is complete, the remaining unsecured debts are typically discharged.
Why You Shouldn’t File for Bankruptcy Without Legal Support
Each type of bankruptcy has strict rules and deadlines and requires specific documentation. For example, if you're filing Chapter 7, you’ll need to pass the "means test" to prove eligibility. With Chapter 13, you must propose a repayment plan that complies with bankruptcy law while addressing all priority debts.
Making a mistake during the filing process could potentially result in the dismissal of your case, loss of protected assets, or even penalties.
Therefore, it's important to consult an experienced attorney who can guide you through the filing process. At Rushing Law Firm, PLLC, we take the time to explain your options, making sure you understand what each path means for you and your future.
Bankruptcy Laws in Arkansas
Arkansas has specific regulations and offers several exemptions that you should understand before filing for bankruptcy. The key points to consider include:
Two Exemption Systems
Individuals filing for bankruptcy in Arkansas can choose between federal bankruptcy exemptions or state exemptions, depending on which offers greater protection for their assets and property.
For instance, Arkansas’ homestead exemption may allow you to protect unlimited equity in your home under specific conditions, but federal exemptions often provide broader overall protection for personal assets.
Means Testing for Chapter 7
To qualify for Chapter 7 bankruptcy, Arkansas residents must pass a means test, which evaluates their income. If your income is below the state’s median income level for your household size, you will qualify for Chapter 7 bankruptcy. If your income is above the threshold, Chapter 13 may be a better fit.
Filing Districts
Bankruptcy cases in Arkansas are handled by federal courts, so you will need to file in either the Eastern or Western Districts of Arkansas, depending on your county.
Effects on Credit and Financial Recovery
Filing for bankruptcy in Arkansas significantly impacts your credit score, often lowering it substantially. However, financial recovery is possible. Many filers can rebuild their credit after their case concludes by adopting responsible financial habits, such as timely bill payments and maintaining minimal debt levels.
Bankruptcy provides a pathway to financial stability, but it's important to plan for long-term recovery after your filing is complete.
Bankruptcy Attorney in El Dorado, Arkansas
At Rushing Law Firm, PLLC, helping people through challenging financial times is central to what we do. We know how overwhelming it can be to consider bankruptcy; our approach offers clear, straightforward guidance tailored to your needs.
If you’re thinking of filing for bankruptcy, reach out to us at Rushing Law Firm, PLLC, for experienced and compassionate legal support. We serve clients in El Dorado, Magnolia, Camden, Crossett, Union County, Columbia County, Ashley County, and Ouachita County.