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If your current financial situation is keeping you awake at night, you probably have a lot of questions about whether you should file a bankruptcy case. Filing for bankruptcy does not automatically eliminate all of your debt and suddenly make your financial situation perfect. The process is meant to provide an opportunity for you to reorganize your debt into a more manageable state of affairs.

Bankruptcy proceedings fall under the jurisdiction of federal courts. Federal guidelines that establish whether or not an individual or business is eligible to file change periodically. Depending on your eligibility, you may be allowed to have your debts discharged or the court may establish a repayment structure that will give you more time to make payments to creditors with court supervision.

Means testing limits change occasionally and it is important to understand how your assets—both cash and property—will affect your eligibility to file a bankruptcy. Means testing also establishes whether an individual or business may file under Chapter 7, or must convert the case to another classification. It is important to consult an experienced bankruptcy attorney to find out the specific requirements and limitations for the region where you live.

Who can file?

Circumstances surrounding discharging or reorganizing debt dictate who can file and which filing is appropriate. There are several classifications for bankruptcy filings.

Chapter 7 is available to individuals and is primarily to discharge debts so that individuals can start over. Normally, the end result is that most or all debts are discharged, but that does not happen in every case. Property liens are one example where debt will not be erased under most circumstances. Business entities are not eligible for Chapter 7 consideration.

Chapter 9 is a vehicle utilized by municipalities. Individuals and businesses do not file Chapter 9. Cities, towns, school districts, counties and tax districts are the primary beneficiaries of this reorganization method.

Chapter 11 allows businesses to reorganize their debt. It does not matter whether the business is a corporation, a limited partnership or a sole proprietorship; however, some protection is limited for sole proprietors. In a corporation, private assets of owners and shareholders are protected from liquidation. A sole proprietor does not have this protection under the current statutes; both personal and business assets are considered and at risk.

Chapter 13 is available to any individual. Individuals that are self-employed or who own an unincorporated business entity can file a bankruptcy under Chapter 13 if their unsecured and secured debt amounts fall within the current limits set by the federal government. One of the most attractive advantages for an individual filing Chapter 13 is the ability to shield their home from foreclosure. Although filers can avoid liquidation of their homes to settle debt, they must pay scheduled mortgage payments on time or they risk losing the residence.

Deciding if you should file a bankruptcy is a decision that requires thoughtful consideration. Consult an attorney you trust to help you examine the options available to you.