Chapter 7 Bankruptcy
Chapter 7 bankruptcy protection allows debtors to get rid of most of their debts and start over with a clean slate. However, it also has its drawbacks, including the loss of property and a depressed consumer credit score. Chapter 7, also called “liquidation” or “straight bankruptcy,” is the process by which a debtor’s non-exempt assets are sold, creditors receive payment, and you are then free from your debts. Most Assets are exempt under State or Federal Law. You must be eligible to file for bankruptcy, and the rules vary depending on the type of case you want to file. Bankruptcy laws changed significantly in 2005, making it harder to qualify for Chapter 7 relief. You will need to speak to a qualified bankruptcy attorney to determine if you are eligible for a Chapter 7 filing.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is intended primarily for the reorganization of businesses with heavy debt burdens, most often associated with corporations or LLC but available to small businesses and individuals as well. Although it’s uncommon, consumers may file for Chapter 11 as well. Chapter 11 allows the debtor to propose a plan for profitability post-bankruptcy, which may include trimming costs and seeking new sources of revenue or income, while temporarily holding creditors at bay. In contrast, Chapter 7 bankruptcy (often referred to as a liquidation) involves the closure of the debtor business and the sale of liquid assets to repay creditors. While Chapter 11 has certain advantages for those that qualify, including more time to file a plan and the opportunity to reorganize, it is more time-consuming and costly than other forms of bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is known as a reorganization bankruptcy. Instead of selling off all relevant assets to pay creditors, people who file for Chapter 13 bankruptcy set up repayment plans that use their income to gradually eliminate their debts. It can be used by debtors whose income exceeds the limits of Chapter 7, those who have significant assets or those who cannot afford the up-front costs of filing. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. However, Chapter 13 bankruptcy has its own set of rules and eligibility requirements.