Bankruptcy protects consumers and businesses who cannot pay their debts by easing the burden on both the indebted and creditors.
There are two types of bankruptcy: liquidations and reorganizations. Liquidity is a term that refers to assets. Liquid assets include things that can be sold, and illiquid assets are those items that cannot be accessed to pay off debt. An example of an asset that is illiquid is a CD held in a bank. During liquidation, the court will take any possessions under your name to pay the debt you owe. This could mean your property or home, car, or even livestock are sold.
Reorganization is commonly used by businesses who own several locations, buildings, or other assets that can be restructured to ease debt. It is also used by farmers. If you live on a farm and have too many debts to pay, and your income does not qualify for another type of bankruptcy, you may be eligible for reorganization.
Bankruptcy should be your last solution to debt problems, and one of two things can happen to a credit score when filing for bankruptcy. If your credit is poor and you were late on many payments, your credit score will likely take a moderate hit. However, if you had excellent credit prior to filing, your score may drop dramatically.
Some other things to keep in mind:
- Your ability to apply for loans in the future could be challenging, but far better than not resolving your debts.
- Bankruptcy can alleviate income tax debt.
- You can file for bankruptcy more than one time if needed.
For more information about whether bankruptcy could be a viable solution for you, consult a Fort Worth bankruptcy attorney.