Everything You Need to Know About Bankruptcy
Bankruptcy often carries a negative connotation, but truthfully it is nothing to be ashamed of. No one should let the stigma surrounding bankruptcy prevent them from filing and making the right choice for themselves. Bankruptcy can be an intimidating topic, and we are here to teach you the basics so you don’t have to move forward with uncertainty. Welcome to Bankruptcy 101.
One of the most common questions people have is, “Can my estate file for bankruptcy?” To answer this question, it is important to understand what exactly is considered an estate. Investopedia shares that an estate can be defined as “everything comprising the net worth of an individual”. This could include any assets, physical or intangible, that an individual owns such as cash, real estate, any investments, etc. When it comes to the main question regarding whether an estate can file bankruptcy, in short, the answer is no. According to Estate Attorney Katherine McDonald, “Estates cannot file for bankruptcy—only individuals can.” Understanding this answer is essential when talking about estate planning.
Estate planning is important, because it allows you to decide how your estate is divided among your successors. Estate planning also “minimizes the chances of family strife and ugly legal battles,” according to Investopedia. Developing an estate plan gives your family the legal support they need after your passing. It is essential to consult with an estate planning attorney during the process of estate planning so they can so you can utilize their expertise. An estate planning attorney will offer you personalized assistance while making sure your estate plan meets involuted state law standards and substantiating that your plan is legal and up to date. If you are currently overwhelmed with debt, it would be valuable to reach out to a bankruptcy attorney, as well, to establish a plan to manage your debt as soon as possible so that you and your loved ones are protected financially and legally.
What if I have more debt than assets when I die?
Estates that are left behind after a person’s death can either be solvent or insolvent. Solvent estates contain enough assets to pay for all their debt, while insolvent estates hold more debt than assets. Estate Attorney Katherine McDonald explains that, “if an estate is insolvent, there is an order in which debtors are supposed to be paid out of whatever assets the estate does have.” This information comes from section 3392 of the PEF Code. The order to be paid out is as follows:
(1) The costs of administration.
(2) The family exemption.
(3) The costs of the decedent’s funeral and burial, and the costs of medicines furnished to him within six months of his death, of medical or nursing services performed for him within that time, of hospital services including maintenance provided him within that time, of services provided under the medical assistance program provided within that time and of services performed for him by any of his employees within that time.
(4) The cost of a gravemarker.
(5) Rents for the occupancy of the decedent’s residence for six months immediately prior to his death.
(5.1) Claims by the Commonwealth and the political subdivisions of the Commonwealth.
(6) All other claims.
If you are an individual dealing with the loss of a loved one who left behind an estate with debt, please note you may still have access to any remaining assets after all debts are paid in the order listed above first and foremost. Those assets will then be distributed in accordance with an established estate plan made by the deceased. If an estate plan is not left behind, there are regulatory guidelines in each state to determine order of distribution.
Common Types of Bankruptcy Filed
You may have come to the conclusion that filing for bankruptcy is the right option for you or your business, but now you need to know what type you should file for. Every client’s financial situation is unique. So, you will need to figure out which type of bankruptcy is most beneficial for you and decide what best fits your own personal situation. The most common types of bankruptcy you can file for are Chapter 7, Chapter 11, and Chapter 13.
Chapter 7 is most commonly known as “straight” or “simple” bankruptcy, according to Wikipedia. As far as filing bankruptcy goes, this is the most simple and the quickest form available, as debt.com shares it typically takes 4-6 months. Most unsecured debts will be liquidated in this process, which can be a valuable option for individuals and businesses. Chapter 7 is also beneficial because you pay nothing back to your creditors and collection attempts are forced to retreat.
Chapter 11 bankruptcy, also known as rehabilitation bankruptcy, is “normally utilized by businesses”, according to credit.com, and it “involves submitting a reorganization plan to restructure debts to help repay creditors over time.” This is beneficial because businesses are allowed to remain operative during this process. If you are an individual experiencing debt that is too high or complex for Chapter 7 or Chapter 13 bankruptcy, Chapter 11 also might be the right path for you.
Chapter 13 bankruptcy involves regular payments to the court for anywhere from 3 to 5 years. At the end of the bankruptcy, whatever unsecured debt remains is discharged. Credit.com shares, “Chapter 13 bankruptcy works especially well if you can afford to pay some, but not all, of your debt.” The focus is on reorganizing your debt and finances and Chapter 13 also offers defense against foreclosure or repossession.
Hire a Bankruptcy Attorney To Move Forward
To decide which chapter is best for you and your personalized situation, you should determine your goals and meet with a bankruptcy attorney to discuss the best way to move forward. If your estate needs financial assistance, it is essential you manage your debt as soon as possible to prevent more financial instability and loss. Because of the complex nature of filing for bankruptcy, individuals and businesses can greatly benefit from the guidance of a bankruptcy attorney to navigate the intricacies of the process both legally and logistically. Contact our attorneys to review your financial situation and get the support you need during this process.