What Are the Differences Between Three of the Most Common Types of Bankruptcy?

The bankruptcy laws of the United States contain six chapters. Each chapter has its advantages and disadvantages. To determine the best bankruptcy filing for you, you should do research and consult with an experienced bankruptcy specialist, such as Tenina Law. You may be searching for general information about the most common types of bankruptcy when you are exploring your options. We provide help with Chapter 7, 11 and 13.

Chapter 7

Chapter 7 bankruptcy means that you plan to liquidate your assets. It is the most popular type of bankruptcy in the US. If you hear someone say they are filing for bankruptcy, then it is likely Chapter 7.

Chapter 7 bankruptcy is available to both businesses and individuals. If a business has accumulated a large amount of debt, and is unable to pay its creditors or serve customers, it may be forced to file bankruptcy. Creditors can force a business owner to file bankruptcy. A Chapter 7 Trustee is appointed at that point to supervise the process and assess the financial status of the institution. Before liquidation, large businesses can sell sections of their company to interested parties.

Individual filers can keep their exempt property with Chapter 7. State laws vary on what property is exempt. Check your local laws to ensure you are aware of this. Some debts are discharged when assets left over are sold in order to pay off debts. The Chapter 7 filing will not discharge you from child support payments, student loans or property taxes. Your bankruptcy filing will remain on your credit report for 10 years, and may affect your ability to obtain credit in the future.

Chapter 11

Chapter 11 is a tool that allows corporations to reorganize their assets and operations. Chapter 11 can be used by individuals and companies, like Chapter 7, but it’s most often for commercial entities. The business can continue to operate despite the debt by filing a Chapter 11 bankruptcy. Debtor in Possession is the name given to the person who controls the business. If a Trustee is not appointed, some courts will require that the Debtor in Possession be supervised. During bankruptcy, the business will need to find ways to continue thriving. It may be necessary to obtain new loans in order to boost earnings, or cancel and reject contracts. Each situation is different. Restructuring may leave owners with nothing if debts exceed assets.

Chapter 13

Chapter 13 bankruptcy may be right for you if you receive a regular income. This type of bankruptcy allows an individual to reorganize their assets and create a rehabilitation plan. The court must also approve the plan. Chapter 13 does not relieve large debt. You can instead stop a foreclosure and receive a super-discharge of non exempt debts under Chapter 7 as well as modify your debt.

Filing for bankruptcy is a complicated process. The United States Code Title 11 for bankruptcy goes into much greater detail on these topics. Meet with a lawyer from the Tenina Law Team for a free consultation to discuss your financial situation.

This article was written by Alla Tenina. Alla is one of the best tax attorneys in Los Angeles California, and the founder of Tenina Law. She has experience in bankruptcies, real estate planning, and complex tax matters. Click here for more information. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.