Liquidation vs. Reorganization

If you’re considering filing for bankruptcy, your bankruptcy lawyer will help you determine which type of bankruptcy would be best suited for your personal situation. For individuals filing bankruptcy, liquidation (chapter 7 bankruptcy) might be the best solution for them, while some might be better off with reorganization (chapter 13 bankruptcy).

What is Liquidation?

Choosing a Chapter 7 liquidation bankruptcy could potentially give you a fresh start within four months from filing if all goes smoothly. However, with this type of bankruptcy, your assigned trustee would sell non-exempt assets, if any, and use the proceeds to pay back your creditors. Under Arizona exemption laws, much of your property is protected as exempt, so in many cases your liquidation will result in a no-asset bankruptcy and you will lose nothing other than your debt.

After the bankruptcy, you will receive a discharge of your debt. When this happens, the remainder of your debt is cancelled, even if some creditors go unpaid. Certain debts, such as taxes, child support or student loans, are considered priority debts; these cannot be discharged.

What is Reorganization?

With reorganization, the goal is to pay off your debt by reorganizing your debts and rescheduling your debt payments to an amount that you can reasonably pay over a period of time. The duration of a repayment period is anywhere between three to five years.  To be eligible for filing for reorganization, you must have a regular income and the approval of your trustee, a bankruptcy judge and your creditors.

Reorganization allows you to keep assets that would be otherwise need to be liquidated, including your home, family heirlooms or investments. However, you must have resources available to repay your debts.

You shouldn’t feel ashamed if you’re considering filing for bankruptcy. It can be the best way to get back on track financially. A bankruptcy lawyer who cares can assist you in choosing a course of action before proceeding to Arizona bankruptcy court.

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