Chapter 11 Vs Chapter 7 Bankruptcy
Depending on the type, or “chapter,” of bankruptcy, debts are treated differently. In Chapter 11 bankruptcy, debts are restructured in a way that debt repayment becomes more achievable. In Chapter 7 bankruptcy, which is the most common form of bankruptcy, many debts are forgiven, and a variety of personal assets are sold liquidated to repay as many remaining debts as possible. In general, Chapter 11 bankruptcy is utilized by corporations and other business owners, while Chapter 7 bankruptcy is favored by individuals.
There are 4 types of bankruptcy filings in the Federal Bankruptcy Code :
- Chapter 7 – Liquidation
- Chapter 11 – Reorganization
- Chapter 12 – Adjustment of Debts of a Family Farmer with Regular Annual Income
- Chapter 13 – Adjustment of Debts of an Individual with Regular Income
The main difference between Chapter 7 and Chapter 11 bankruptcy is that under a Chapter 7 bankruptcy filing, the debtor’s assets are sold off to pay the lenders whereas in Chapter 11, the debtor negotiates with creditors to alter the terms of the loan without having to liquidate assets.
A Bankruptcy Lawyer In Cary North Carolina Will Handle All Of The Paperwork Required For A Bankruptcy Filing Which Includes Preparing:
- A statement of financial affairs
- Schedules of assets and liabilities
- A schedule of current income and expenditures
- A statement of monthly net income
- Evidence of income from employers received 60 days before filing
- Information about any interest you have in federal- or state qualified education or tuition accounts
- A schedule of executory contracts and unexpired leases
- Copies of tax returns or transcripts from the most recent year .
We will be able to determine what property should be considered protected from bankruptcy. North Carolina law provides a homestead exemption, a motor vehicle exemption, and several other personal property exemptions.
Our team can also move quickly to file a bankruptcy petition with the court, which will automatically stop creditors from contacting you while you are working your way through the bankruptcy process.
Your Sasser Law bankruptcy attorney will assist and advise you on the difference between Chapter 7 and 13. We will explain every step of the process ahead of time to make sure you are prepared for questions or decisions from the bankruptcy trustee or court.
Most bankruptcy cases proceed smoothly, but sometimes disputes arise and make litigation unavoidable. If this occurs, the seasoned bankruptcy litigation team at Sasser Law Firm has extensive trial experience and the understanding of bankruptcy code required to fight for your interests all the way through appeal, if necessary.
What Happens Under Chapter 11
Chapter 11 allows your small business to renegotiate the terms of its debt obligations with some or all of its creditors and to repay debts on a manageable, court-approved schedule, even over some creditors objections. Meanwhile, your business can continue to operate under your control as long as you act in good faith. If your business completes the repayment plan, its remaining debts will be discharged and it can stay in business. Chapter 7 will lower your businesss credit rating but you can usually obtain debtor-in-possession loans to help finance the reorganization. We can explain how a Chapter 11 plan works and help you analyze if you can manage one.
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How To Select A Bankruptcy Type
Choosing a chapter to file under is, within limits, up to the debtor. It depends on your needs.
Generally, Chapter 7 is best for those with limited income and few assets who want to conclude matters as quickly as possible. But those who want to file under Chapter 7 must pass a means test. In short, if you have too much income, the court may deny a Chapter 7 liquidation petition or switch it to a Chapter 13 bankruptcy.
Chapter 13 may be better suited to someone who wants to hang onto as many possessions as possible and has the income to support repayment.
Meanwhile, businesses that aim to stay in business may want to choose Chapter 11.
Many filers, especially in complex cases, are represented by bankruptcy attorneys who guide the decision about how to file. Professional organizations, such as the National Bar Association or your local bar association, can be sources of referrals to competent lawyers, as can personal recommendations from friends and family. If finances are tight, you can often find an affordable attorney by contacting your local legal aid society.
Chapter 1: For Foreign Creditors
A fairly recent addition to the federal Bankruptcy Code, Chapter 15 was adopted to enhance cooperation in international insolvencies. Such filings are rare, but they are useful to parties representing debtors, creditors, and assets involving more than one country seeking efficient and reasonable bankruptcy processes.
A Chapter 15 filing typically is not central to a bankruptcy involving a foreign individual or entity. Instead, it is considered ancillary, the main event unfolding in the foreigners home nation.
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Overview Of Bankruptcy Chapters
The Bankruptcy Code appears in title 11 of the United States Code, beginning at 11 U.S.C. 101. Its principal chapters are briefly outlined below:
Chapter 7 bankruptcy is a liquidation proceeding available to consumers and businesses. Those assets of a debtor that are not exempt from creditors are collected and liquidated , and the proceeds are distributed to creditors. A consumer debtor receives a complete discharge from debt under Chapter 7, except for certain debts that are prohibited from discharge by the Bankruptcy Code.
Chapter 11 bankruptcy provides a procedure by which an individual or a business can reorganize its debts while continuing to operate. The vast majority of Chapter 11 cases are filed by businesses. The debtor, often with participation from creditors, creates a plan of reorganization under which to repay part or all of its debts.
Which Is Better Chapter 7 Or Chapter 13
When Chapter 7 Bankruptcy Is Better than Chapter 13 Bankruptcy. For many debtors, Chapter 7 bankruptcy is a better option than Chapter 13 bankruptcy. In many cases, Chapter 7 bankruptcy is a better fit than Chapter 13 bankruptcy.
Which is more expensive, Chapter 7 or Chapter 11?
Chapter 11, which is more expensive than Chapter 7, is typically intended for medium- to large-sized businesses, but smaller businesses and sole proprietors may also want to consider this type of bankruptcy. Unlike Chapter 7, Chapter 11 does not liquidate assets, only restructures debts.
What happens to your credit score if you file Chapter 7 or Chapter 11?
Whether you file Chapter 7, Chapter 11 or Chapter 13, your credit score will suffer. Legally, credit report agencies can leave all three types of bankruptcies on your credit reports for 10 years from your filing date. However, they usually remove completed Chapter 13 bankruptcy cases in seven years.
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What Do You Lose When You File Chapter 7
Filing Chapter 7 bankruptcy wipes out most types of debt, including credit card debt, medical bills, and personal loans. Your obligation to pay these types of unsecured debt is eliminated when the bankruptcy court grants you a bankruptcy discharge.
What is the difference between Chapter 7 and Chapter 11 bankruptcy?
Companies that find themselves in a dire financial situation where bankruptcy is their best, or only, option have two basic choices: Chapter 7 bankruptcy or Chapter 11 bankruptcy. Both are also available to individuals. Here is how these two types of bankruptcy work and how they differ.
What Is The Difference Between Bankruptcy Cases Filed Under Chapters 7 11 12 And 13
Chapter 7: Often called the liquidation chapter, chapter 7 is used by individuals, partnerships, or corporations who are unable to repair their financial situation. In chapter 7 asset cases, the debtor’s estate is liquidated under the rules of the bankruptcy code. Liquidation is the process through which the debtor’s non-exempt property is sold for cash by a trustee and the proceeds are distributed to creditors.
Chapter 11: Often called the reorganization chapter, chapter 11 allows corporations, partnerships, and some individuals to reorganize, without having to liquidate all assets. In filing a chapter 11, the debtor presents a plan to creditors which, if accepted by the creditors and approved by the court, will allow the debtor to reorganize personal, financial or business affairs and again become a financially productive individual or business.
Chapter 12: Chapter 12 is designed for “family farmers” or “family fishermen” with “regular annual income.” It enables financially distressed family farmers and fishermen to propose and carry out a plan to repay all or part of their debts. Under chapter 12, debtors propose a repayment plan to make installments to creditors over three to five years. Generally, the plan must provide for payments over three years unless the court approves a longer period “for cause.”
More information regarding the difference between chapters can be found in the Bankruptcy Basics Manual.
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What Is The Difference Between Chapter 11 And Chapter 13 Bankruptcy
Many people face financial difficulties more than once in their lives. However, if you own a business that is financially struggling, it affects not only the business itself as well as your personal finances.
Businesses fail for many reasons however, the primary reason is cash flow problems. So, what do you do if youre facing both professional and personal financial challenges?
You may find yourself considering filing bankruptcy. But which chapter of bankruptcy should you consider? Keep reading to learn more about Chapter 11 and Chapter 13 bankruptcy.
How Does Bankruptcy Work
Bankruptcy is a method to eliminate or at least reduce your debt when bills pile up beyond your ability to repay them. It should be viewed as a last resort to be considered only when all other potential courses of action to get back on track have been exhausted.
Individuals filing for bankruptcy mostly use either Chapter 7 or Chapter 13. The biggest difference between the two is what happens to your property:
- Chapter 7, which is known as liquidation bankruptcy, involves selling some or all of your property to pay off your debts. This is often the choice if you dont own a home and have a limited income.
- Chapter 13, also known as a reorganization bankruptcy, gives you the chance to keep your property if you successfully complete a court-mandated repayment plan that lasts between three and five years.
Depending on where you live and your marital status, some of your property may be exempt from being sold when you file Chapter 7 because of state-specific and federal exemptions. With exemptions, whether they be your home equity, retirement accounts or even personal possessions such as jewelry, you receive the allowed exemption amounts, and the rest of the proceeds will be used to pay off debts. You can read more about potential exemptions, and check out this chart for a quick rundown on the two types:
| Chapter 7 |
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What Is A Chapter 13 Bankruptcy
A Chapter 13 bankruptcy functions similarly to a Chapter 11 however, Chapter 13 bankruptcies are only for individuals, not businesses. When an individual files for Chapter 13, they can protect their assets while negotiating a three to five-year payback of debts.
A Chapter 13 bankruptcy may take approximately three months to complete. However, your bankruptcy wont be discharged until you complete the three to five-year plan.
Difference Between Chapter 7 And Chapter 11 Bankruptcy
Chapter 7 of the bankruptcy code is responsible for controlling the process of the liquidation of the assets where absolute priority rule is mentioned that stipulates the order according to which payment of the debt will be made, whereas in the case of Chapter 11 of the bankruptcy code individual or the business that requires some time duration for debt repayment will approach the creditors for changing the terms and condition for the loan like interest terms etc.
When a business has too much debt, and there is no way to move out from this situation, then a business can file bankruptcy and restart from fresh. In the Federal Bankruptcy code, there are different ways through which a business can file bankruptcy. These ways are known as chapters. This article looks at the differences between the most common chapters, i.e., chapter 7 vs. chapter 11.
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Do I Have To Attend A Court Hearing In A Chapter 7 Vs Chapter 11 Case
Debtors must attend a meeting of creditors in each bankruptcy case regardless of filing under Chapter 7 vs. Chapter 11. However, Chapter 7 cases usually don’t have any other court hearings, unless the individual debtor is reaffirming a car loan.
There are numerous court hearings a debtor attends in a Chapter 11 bankruptcy case.
Similarities Between Chapter 7 & Chapter 11 Bankruptcy
For all their differences, Chapters 7 and 11 bankruptcy have several things in common. Consider:
- The automatic stay instantly blocks most creditors from harassing you for payment the stay stops wage garnishments, levies, and certain lawsuits. Some legal actions may continue, including criminal cases, some family law cases, and government civil enforcement proceedings are immune to bankruptcys automatic stays. But dont abuse the privilege: first-time bankrupts benefit from the stay those who have filed and dismissed cases in the past six months cant expect protection.
- Anyone can file for Chapter 7 or 11: individuals, married couples, business entities. Also common to both: The required time period must pass before filers who have received a debt discharge can qualify for a second bankruptcy discharge.
- A credit counseling course must be completed within 180 days before filing proof of completion must accompany the petition and other official bankruptcy forms.
- A 341 meeting of creditors must be attended by the filers, where documentation supporting the petitions financial disclosures is verified. Filers verify their identities, testify under oath, and answer questions posed by the trustee as well as creditors.
- There will be fees Attorneys fees. Filing fees. Administrative fees. Trustee fees. They can add up fast.
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When Does Filing Chapter 11 Bankruptcy Make Sense
Chapter 11 bankruptcy is a useful but expensive tool. It may make sense in the following situations:
Small businesses
Small business owners who want to keep their business running may get debt relief from Chapter 11 bankruptcy. Filing for bankruptcy may help with debts, but it wont address insufficient income. If a small business is struggling to bring in revenue, Chapter 11 wont help.
Large businesses
Large businesses that want to prevent the sale or liquidation of the company may be able to reorganize and shed enough debt to continue operating for shareholders.
If a debtor owes a lot of money and isnt paying their obligations, a creditor may be able to force them into involuntary Chapter 11 bankruptcy.
Individuals
Individuals with debts that exceed the Chapter 13 bankruptcy limits may file for Chapter 11 instead. People with smaller debts may choose Chapter 11 if the fees for filing are less than the expected commissions for Chapter 13 bankruptcy.
Chapter 11 Vs Chapter 7
Small business owners must decide between Chapter 7 and Chapter 11 bankruptcy. Chapter 11 bankruptcy allows the owner to continue operating the business while reducing debts. While the owner may opt to sell some assets, it isnt always required.
Chapter 7 bankruptcy, on the other hand, requires the business to liquidate its nonexempt assets to repay creditors. While there is a filing fee , the overall costs of filing Chapter 7 bankruptcy are typically much lower.
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Contact A Skilled And Experienced Bankruptcy Lawyer Today
The bankruptcy attorneys at Bunch & Brock have helped countless clients just like you reestablish their financial footing and step into a brighter outlook. Whether you are seeking a personal or business bankruptcy, our experienced Lexington, Kentucky, bankruptcy lawyers will ensure that you receive full protection under the law, put an end to harassing creditor phone calls and letters, and prevent legal mistakes that can prove costly. Our years of experience mean we know how to utilize federal bankruptcy laws to your benefit and prevent any unintended consequences. We will answer all your questions and stand beside you through every step of the process. For an initial consultation about your case, call us at 254-5522. Its the first step toward a better future.
What Is The Difference Between Chapter 7 And Chapter 11 Bankruptcy
In bankruptcy for small business owners, Chapter 7 and Chapter 11 have different outcomes. Chapter 7 results in the closure of your business and the sale of its assets to pay off creditors. Chapter 11 lets you keep running the business as you pay off many of its debts according to a reorganization plan. Your choice of chapter will depend on your objective. Chapter 7 allows you to free yourself of an unprofitable business and perhaps to salvage some business assets by claiming them as exemptions. Chapter 11 gives you a chance to bring the business to a profitable state, but only if you can make the debt payments required under the plan.
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The Cons Of Chapter 11 Business Bankruptcy:
- Chapter 11 bankruptcy can be a long process. The more complex the business, the longer the case. Many businesses will need six or seven months to complete their reorganization. It’s a lengthy, extensive, and complex process which means your business is expending a great deal more time and money than it might with a more straightforward bankruptcy process like Chapter 7.
- The business must show how it will become profitability. The goal of a Chapter 11 bankruptcy is restoring a business back to profitable operations. This means that your business’s 3-5 year financial projections must show it being a profitable operation, once outstanding debts are eliminated, reduced, or reorganized. While this is a positive, it can be a challenging endeavor for a business in dire financial straits, before its debts are considered.
