Chapter 7, Chapter 11, and Chapter 13 Bankruptcy What Are They?

Bankruptcy is not just something businesses go through. People do, too! But what is it? Simply put, bankruptcy is when an entity cannot pay off debts accrued. The entity then employs a bankruptcy attorney to, hopefully, find debt relief. If the entity is a person or family, it may have been due to medical bills, interest rates rising faster than the individual or family can pay or even handle. If the entity is a business, much of the same applies. However, this is a very broad simplification as there are different “chapters” that bankruptcy falls under, each with their own guidelines, qualifications, and process that the individual, family or business must operate within and adhere to. Here are a few common chapters and their general use that a bankruptcy lawyer can help further break down.

Chapter 7 Bankruptcy

In simpler terms, an individual that has credit card debt or loan payment debt and can’t pay them, will oftentimes file for Chapter 7. This may give the individual the opportunity to erase some of their slowly rising debt, especially individuals with limited income. The process of Chapter 7 can vary in time of completion but usually the individual will be twiddling their thumbs for the next six months. If an individual filed for Chapter 7 bankruptcy because of credit card debt, they will notice the reminder on their credit report for the next 10 years.

Chapter 7 bankruptcy employs the process of liquidation. What is that? Basically, assets are liquefied to pay off accruing debts. An individual’s possessions may be sold like jewelry, appliances, personal property like instruments, vehicles, pets, and even your home. However, depending on the state, you can withhold some value from each of those categories. For the sake of argument, here’s a hypothetical; if a guitar an individual owned was worth $100, but the state they reside in only allows a $25 exemption on instruments, that guitar can’t withheld from liquidation.

With that being said, if an individual wishes to keep their home and vehicle, they will have a better chance at keeping those properties by choosing Chapter 13 bankruptcy.

What Is Chapter 13 Bankruptcy?

While Chapter 7 bankruptcy attempts to eliminate debt by claiming property, it is usually for individuals with very little disposable income, if at all. If your home’s median income is too high, then Chapter 13 comes into play.

If Chapter 13 is enacted, it means that the individual has disposable income that can be used as a means to eliminate debt with the use of a payment plan. If the payments set are met, the rest can be discharged. Things like credit card and medical debt, can be discharged while mortgage and student loans cannot, but there are some exceptions to the rule. Medical bills are what sent 2 million people residing in the United States during the year 2013, on the doorstep of a bankruptcy law firm. That same year bankruptcy attorneys had their work cut out for them when 333,626 Chapter 13 bankruptcies were filed.

What Is Chapter 11 Bankruptcy?

Generally speaking, Chapter 11 is what businesses pursue. The business in question still technically owns the company and can still run it, but they cannot expand their business and must work with a trustee in creating a plan. You will find similarities in Chapter 11 to Chapter 13 and Chapter 7, but reorganized for a business. Not only did bankruptcy attorneys oversee thousands of Chapter 13’s during 2013, but also reviewed 8,980 Chapter 11’s in the same year.

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