What are Chapter 7, 11 and 13 Bankruptcies and Who Can File for Each?

On a personal level, you can file bankruptcy using chapter 7 or chapter 13. If you have a company and need to file bankruptcy, then you can file chapter 7 or 11.

Chapter 7 and 13

Chapter 7 – A chapter 7 bankruptcy can be used to discharge all debt. To further narrow down the type of debt, it is generally unsecured debt. Each state has income and household thresholds for qualifying. If you exceed these limits you cannot file this chapter. If you have any questions at all it is best to consult with a bankruptcy attorney, the consultation is free.

Chapter 13 – A chapter 13 bankruptcy is called a reorganization. If you can’t qualify for chapter 7 and you have assets you want to keep, this is the chapter you need. The court will determine your monthly payments, this based on established guidelines, the duration of these payments is for 5 years. Most of the time people want to keep their house, but their total debt burden won’t allow this. Chapter 13 reduces payments on other debts so you can keep your house and afford the payments. After 5 years any outstanding balances will be discharged. Again, it is advisable to consult with a bankruptcy attorney to get the details for the state you live in.

Note: Make sure you consult with a bankruptcy attorney that concentrates on bankruptcies. Some general practice attorneys are jumping on the financial crisis bandwagon, they may not be right for you.

Chapter 11 Bankruptcy

Chapter 11 – This chapter is available to every business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most prominently used by corporate entities.

Under this chapter a business is under court protection. A automatic stay is in place which stops collectors from taking further action. The business owner will plan their reorganization and then present it to their creditors. If the plan is approved, the reorganization starts, if an agreement cannot be reached the judge could put the company into a chapter 7 liquidation bankruptcy.

A company under this plan can emerge in as little as months or it can take years. It is advisable to find a bankruptcy attorney with experience who handles these specific chapters.

Cases exceeding 50 million dollars is handles by a federal bankruptcy court. Others still go through the states system.

If you have bankruptcy questions or would like to speak with a qualified bankruptcy attorney, please contact us today!

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