Bankruptcy allows businesses and individuals to wipe out their debt and start with a clean financial slate. However, they work very differently.
Here are the differences between personal and corporate bankruptcies.
Personal chapters 13 and 7
Chapter 7 allows individuals to discharge their debts and is suitable for people with little income. Meanwhile, chapter 13 is better for individuals with substantial income because it will enable them to restructure their debt into a three- to five-year debt payment plan and tends to be the more popular personal bankruptcy.
Corporate chapter 7
Companies can also declare Chapter 7 bankruptcy, although that will demand that any company that is not a sole proprietor. That is because the firm sells its property and assets and distributes the funds to creditors. In addition, chapter 7 does not allow a company to restructure and continue operating.
If a business wants to restructure and create a payment plan to continue operating, they need to consider chapter 11 bankruptcy. This type is best for large companies and allows creditors voting privileges to approve the repayment plan. Individuals can also declare chapter 11 bankruptcy when their debt exceeds the maximum limits in chapter 13.
Personal vs. corporate chapter 7
The court grants individuals debt discharge when filing for chapter 7 bankruptcy, while most businesses will not receive this. Therefore, companies tend to prefer closing their business through other means.
Personal bankruptcy is still a challenging process. It requires qualifying and filing out a lot of paperwork. While it does not have to be as intense as corporate bankruptcy, it is wise for individuals to get assistance when filing.