When someone is considering bankruptcy, it is difficult to get past the emotional and rational reactions to the concept. Although it is designed to give solace to people struggling with their financial lives, it can feel like failure if bankruptcy is the best way to get there.
From a logical perspective, it may also seem like a step back from progress if a person has to sell off all remaining assets save a few necessities in order to raise money to pay off debts. Many people do not realize that liquidation, formally known as Chapter 7, is only one of several types of bankruptcy that can lead to a fresh start.
Reorganization, also called Chapter 11, allows some debtors to retain many of their remaining assets and operations. This method is more commonly used by businesses, but individuals and owners of small businesses can use it if they qualify. It is an attractive option if businesses see a path to financial health if they can stay open during the process.
A Chapter 11 petition must include an approach to paying off debts in a timely manner and a reorganization plan, covering what assets may be sold and which should be retained, must follow within a few months. Larger or more organized businesses are generally more successful with Chapter 11, so individuals must approach the process with a high degree of organization.
An attorney can help judge whether or not a Chapter 11 bankruptcy has a good chance of helping restore financial strength. Legal representation is generally recommended with complex bankruptcies.