Avoid Undesired Consequences By Choosing The Right Type Of Bankruptcy Relief
“Choosing the correct bankruptcy chapter is essential.”
Essentially bankruptcy offers two options — liquidation and reorganization. While the principles of bankruptcy are the same for each, choosing the correct option is essential. When going to bankruptcy court, it is also important to have an experienced attorney there who will fight for your rights from beginning to end.
Consumer Bankruptcies
Typically, consumers will seek one of two types of bankruptcy relief – Chapter 7 or Chapter 13.
Chapter 7
In a “straight” liquidation bankruptcy, also known as a “Chapter 7”, a Trustee is appointed to gather all of the debtor’s assets to pay the creditors. However, the law allows an individual debtor certain “exemptions” – meaning that the debtor can keep certain property such as a car, household goods and furnishings, clothing and, in most cases, their jewelry as well a limited amount of equity in their house. If successful, a Chapter 7 bankruptcy can discharge most, if not all, of your debts to allow you the fresh start that you deserve.
Chapter 13
A second form of consumer bankruptcy, known as a “Chapter 13” reorganization is available to individuals with regular income. A Chapter 13 bankruptcy allows you to get your finances in order by proposing a debt restructuring plan that is subject to approval by your creditors and the bankruptcy court. This often includes eliminating penalties, reducing or eliminating interest rates, and sometimes even consolidating debts.
In a Chapter 13 case, the debtor keeps all of his or her property and proposes a 3 or 5 year plan to pay his or her creditors — either in full or in part. This process is supervised by a Chapter 13 Trustee who is appointed to oversee the process by reviewing the debtor’s income and expenses to ensure that the debtor’s plan is viable and then by receiving and distributing the plan funds to the creditors. Upon completion of a Chapter 13, any remaining debts get discharged. Once approved by the court, you should have a lower monthly payment that you can keep up with. It is important to note that there are certain debt ceilings above which a debtor is ineligible for a Chapter 13.
While most individuals who seek protection from the bankruptcy code will file a Chapter 7 or 13, another type of reorganization, known as a Chapter 11 is also available to both individuals and businesses (see below). A Chapter 11 is similar to a Chapter 13 as it allows the Debtor to keep their property and propose a plan to pay their debts either in full or in part, there are numerous requirements that make a Chapter 11 much more complicated and expensive than a Chapter 7 or 13.
Business Bankruptcies
Unlike individuals, businesses who want to file bankruptcy and remain in business must file a Chapter 11 reorganization (as a business Chapter 7 requires the bankruptcy trustee to liquidate the business to pay the creditors and, unlike an individual chapter Chapter 7, does not allow the business to exempt any assets).
In a Chapter 11, the principals of the debtor act as the trustee “debtor in possession.” This means that they take on fiduciary responsibilities to the creditors and the bankruptcy court — including following all of the bankruptcy rules and filing monthly operating reports. The U.S. Trustee’s office oversees all Chapter 11 cases to ensure that all of the Chapter 11 requirements are met.
Pursuant to 11 USC §528 we are required to state that bankruptcy relief is provided in accordance with Title 11 of the United States Code. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
