A Chapter 7 bankruptcy is for individuals who have financial difficulty preventing them from paying their debts and who are willing to allow their nonexempt property to be used to pay their creditors. The primary purpose of filing under Chapter 7 is to have your debts discharged. The bankruptcy discharge relieves you after bankruptcy from having to pay many of your pre-bankruptcy debts. Exceptions exist for particular debts, and liens on property may still be enforced after discharge. More information about Chapter 7 is available here.
A Chapter 13 bankruptcy is for individuals who have regular income and would like to pay all or part of their debts over a period of 3 to 5 years. Under Chapter 13, you must file with the court a plan to repay your creditors all or part of the money that you owe them, usually using your future earnings. If the court approves your plan, the court will allow you to repay your debts, as adjusted by the plan. After you make all the payments under your plan, many of your debts are discharged. Chapter 13 may be ideal for those who have assets that would not be fully protected in Chapter 7 from liquidation; or who have income to make payments, but are having difficulty making the amount required by creditors. Depending upon your income and other factors, Chapter 13 offers an opportunity to adjust those amounts, and get a fresh start with an affordable payment. More information about Chapter 13 is available here.
Chapter 11 or Chapter 12
A Chapter 11 bankruptcy is often used for reorganizing a business, but is also available to individuals. A Chapter 12 bankruptcy permits family farmers and fishermen to repay their debts over a period of time using future earnings. Like in Chapter 13 or Chapter 12, a Chapter 11 debtor proposes a plan to pay creditors, which could assist a debtor with debt that exceeds the limit or type that can be reorganized in Chapter 13 or Chapter 12. The provisions of Chapter 11 and chapter 12 are more complex and typically involve more cost. In 2020, Subchapter V to was added to Chapter 11 which has provisions that may be additionally beneficial for small business debtors, which can be business entities as well as individuals. Subchapter V eliminates some of the costly requirements of a regular Chapter 11 case, including solicitation of creditor vote, a creditors’ committee, and certain U.S. Trustee fees and reporting requirements. More information is available at the following links: Chapter 11, Subchapter V or Chapter 12.
Upon the filing of any type of bankruptcy case, an automatic stay goes into effect as to debtors and their property, which stops most collection and legal action against the debtor and their property. Bankruptcy cases can also be filed jointly with spouses. An individual known as the trustee is typically appointed in bankruptcy cases to oversee the case for compliance with the bankruptcy laws and collect the debtor’s property or payments for distribution to creditors. In a Chapter 11, 12 or 13 case a debtor typically remains in possession of all of their property, as long as they propose a plan which is approved and are complying with their plan and other requirements of their case.
Because bankruptcy can have serious long-term financial and legal consequences, including loss of your property, you should hire an attorney and carefully consider all of your options before you file. Only an attorney can give you legal advice about what can happen as a result of filing for bankruptcy and what your options are. If you do file for bankruptcy, an attorney can help you fill out the forms properly and protect you, your family, your home, and your possessions. Contact us for a free consultation. We are a debt relief agency. We assist people in filing for bankruptcy.
We can assist with debtor-creditor matters pre-suit as well as post-suit after proceedings have been filed in state or federal court, on behalf of both debtors and creditors. Our practice includes advising and representing clients in financial workout and restructuring negotiations, the sale and purchase of distressed assets and businesses, and the filing of creditor claims, motion practice and the defense and prosecution of adversary proceedings in federal bankruptcy court. Call us to discuss your situation.