The US Bankruptcy Code offers business firms and individuals various legal means that will enable them rise up from overwhelming debts and regain stability through financial control. One of these legal solutions is bankruptcy, which has two types: liquidation bankruptcy and reorganization bankruptcy.

Bankruptcy offers many advantages, such as the restructuring of the debt payment scheme to make monthly payments more affordable, the discharge of all unsecured debts (such as debts due to credit card use, medical bills, personal loans, etc.), or the liquidation of certain assets and properties to pay non-dischargeable debts (these are usually debts owed to the government).

There are different chapters in the US Bankruptcy Code, each designed to address an individual’s or a firm’s specific financial situation. There is chapter 7 (which is liquidation bankruptcy), chapter 11 (or business reorganization, chapter 12 (designed for families of farmers and fishermen), and chapter 13 (or business reorganization designed for sole proprietors).

In the year 2010 alone, the U.S. federal bankruptcy courts recorded the filing of more than 1.5 million personal bankruptcy cases. Millions of American individuals and hundreds of business firms (both small and giant firms) resort to bankruptcy due to the many advantages it offers. However, a good business lawyer would not right away offer bankruptcy as the main solution to overwhelming debts. He/she will first discuss bankruptcy’s advantages and disadvantages, as well the benefits and detriments of other legal means, like debt negotiation.

The law firm of Ryan Ruehle explains pretty clearly what bankruptcy and debt negotiation are, the specific chapters of the bankruptcy code (with the specific benefits offered by each chapter, as well as the requirements for eligibility), the differences between the two legal solutions, and the advantages and disadvantages of both.

On top of the advantages, bankruptcy also orders an “automatic stay” once it is filed. This stay stops any attempts made by creditors to repossess, or foreclose on, a debtor’s property, order an eviction or utility shut-off, and force the debtor to pay through harassing tactics that include threat of a lawsuit, sending of email/text messages, phone calls, letters, and a court request to have the debtor’s wages garnished or his/her bank account levied.

However, debt negotiation may prove to be better due to the more manageable payment plan that it offers. This is because debt negotiation:

  • Does not require a litigation process (which bankruptcy requires)
  • Offers debtors the choice of paying the debt through a single/lump sum payment or through more affordable monthly payments
  • Frees the debtor from being harassed by debt collectors, as well as from lawsuits and any legal action that will result to the forced sale of his/her properties
  • Reduces or defers interest payments, lengthens the time span of payment, and allows the consolidation of loan payments
  • Can reduce the amount of the loan to more than half its original sum

It will require great negotiation skills and extensive financial expertise, however, to make debt negotiation effective and successful.