Chapter 7, Chapter 11 and Chapter 13 Bankruptcy

Depending on your particular situation, you have 3 filing options when attempting bankruptcy. Each has advantages and disadvantages depending on financial situation and whether you are an individual or a corporation.

Chapter 7

By far the most common is Chapter 7 bankruptcy. In this form of bankruptcy all assets are liquidated with a few exemptions for income required to survive. It’s available to all individuals no matter how much debt they have and it doesn’t matter if they are solvent or insolvent. You are solvent if your assets excede your liabilities. It is not available to partnerships or corporations.

You are a good candidate for Chapter 7 Bankruptcy of you…

  • Are unable to meet even minimum payments on debt
  • Credit cards and other personal loans never seem to go away (or go down)
  • You are being hounded by creditors

The benefits of Chapter 7 include a discharge of all debts and perhaps lower stress in your life. A creditor cannot hound you any more after your debt has been discharged.

But a discharge does not eliminate certain types of debt…

  • Alimony and child support obligations
  • Certain taxes
  • Debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit
  • Debts for willful and malicious injury by you to another entity or to the property of another entity
  • Debts for death or personal injury caused by your operation of a motor vehicle while intoxicated from alcohol or other substances
  • Debts for criminal restitution orders under title 18, United States Code

The bankruptcy courts are very strict as regards to actual assets claimed. Any attempt to hide income or assets can be subject to bankruptcy fraud and could eliminate any discharge.

A court trustee will be assigned to manage the debtors estate with the power to investigate any and all aspects of the filing, from both a debtors as well as a creditors point of view.

Chapter 11

Chapter 11 is much more complicated. The goal with this type of bankruptcy is to restructure the debt in a way that is suitable for all involved. It requires a much more formal plan for repayment and creditors have a larger say in the process.

Seriously consider hiring a knowledgeable attorney if you are considering this option. The “debtor in possession” as you are called, has many more responsibilities in a Chapter 11, and usually acts as their own trustee during the bankruptcy. That’s why typically, individuals choose Chapter 7 over 11. However, businesses and partnerships have more and better options in a Chapter 11 bankruptcy.

In a Chapter 11 bankruptcy a written disclosure statement and a plan for reorganization must be filed with the court. The disclosure statement is a detailed document that must contain all the assets, liabilities, and business details of the debtor. The disclosure statement must give a creditor enough information to make a well-informed judgment about the reorganization plan.

The information required is governed by judicial discretion and the circumstances of the case as well as bankruptcy law.

If a creditor will be paid less than the full value of their claims under the plan, they get to vote on the plan by ballot. After the disclosure statement is approved and the ballots are collected and tallied, the bankruptcy court will conduct a confirmation hearing to determine whether to confirm the plan.

The advantage to the debtor in a Chapter 11 bankruptcy is they don’t have to liquidate all assets. For a business, this means they do not have to go out of business but, with a well organized plan, can survive and perhaps even thrive in the long run.

Chapter 13

Chapter 13 bankruptcy is much like Chapter 7 but you are not forced to liquidate all your assets.

Many of the same reasons a Chapter 7 may be appropriate also apply to Chapter 13, including the chance to get credit card debt and debt collectors off your back, But it can also be good for folks facing foreclosure or some other legal suit.

Chapter 13 requires a debt repayment plan like a Chapter 11 that must be submitted to the bankruptcy court. It describes how you intend to pay off your debts, over a 3-5 year period. You may get to pay off that debt for as little as 10 cents on the dollar.

The goal with Chapter 13 Bankruptcy is to give you a fresh start. And if you have a strong desire to pay off your debts but, due to a loss of job, disability, or other personal crisis, can no longer afford to make regular monthly payments. You need relief from high interest rates, late fees and the penalties that keep piling up each month and you never seem to be able to catch up.

Chapter 13 is much simpler than Chapter 11 and follows a similar process to Chapter 7. The difference is, you’ll need to have a clear plan for paying off the debt in 3-5 years and you must prove that you cannot pay the actual debt amount. Creditors will need some proof if they are going to take only a small percentage of what is actually owed to them.

If you meet the agreed upon repayment schedule, then you will receive a discharge which means creditors can no longer seek payment there after. You have been released.

Please consider Brown & Associates as your legal representative in any bankruptcy filing.