Can you please explain the difference between Chapter 7, 11, and 13 Bankruptcy?

Question

I am very interested in the different bankruptcy laws and how it can apply to a situation. This is for a friend. Please share with me your knowledge and experience (if applicable). Thank you in advance. Happy New Years! :-)

Answer 1

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
Related Terms
Debt adjustment - The arrangements made for the repayment or satisfaction of debts in an amount or manner that differs from the original arrangements
Dischargeable debts - Debts that can be erased by going through bankruptcy
Nondischargeable debts - Debts that cannot be erased by filing for bankruptcy
Lien - A charge or encumbrance upon property for the satisfaction of a debt or other duty
Secured debt - A debt on which a creditor has a lien
Unsecured debt - A debt that is not tied to any item of property
Sources: Merriam-Webster's Dictionary of Law, NOLO Everybody's Legal Dictionary



The filing generally depends on the person's financial situation. Reportedly, the most common filing is Chapter 7. Companies, married couples and individuals are allowed to file Chapter 7.

A debtor filing Chapter 7 is essentially scrapping everything and starting over, hoping for a clean financial slate. Basically what happens is that once the filing is underway, an administrator or trustee is appointed to maneuver the sale of the debtor's assets. This does not necessarily mean that everything the person owns is sold. Both federal and state laws allow for certain exemptions, meaning that the debtor might get to keep some property, such as his or her primary residence or personal items like clothing. Once the debtor's assets are liquidated, the trustee pays certain creditors a portion of the money raised. Obviously, not all of the creditors receive money from the proceeds, so many of those financial obligations are "forgiven," or discharged. Once someone has filed for bankruptcy under Chapter 7, he or she cannot file again for seven years, and debts that were not forgiven in a previous filing will not be discharged in the next filing.

It is important to note that there are certain debts for which the debtor will receive no forgiveness. Alimony, child support and taxes are not discharged under any bankruptcy filing, and student loans are seldom discharged (see this page for details). So, if a lot of your debt falls into these categories, you might be better off filing Chapter 13.

Chapter 12 and Chapter 13 are basically the same filing, except that Chapter 12 is for family farmers and Chapter 13 is for other individuals. As long as you have a steady, reliable income, less than $269,250 in unsecured debt and less than $807,750 in secured debt, you can file Chapter 13. Once the filing is made, the debtor is assigned a trustee. The debtor and trustee develop a proposal for a repayment plan. The court decides whether to accept or alter the plan or dictate another repayment plan altogether. Once the plan is decided upon, it can last anywhere from three to five years.

You may be wondering why someone would file for Chapter 12 or 13 instead of Chapter 7. There are a couple of reasons for this:

Under Chapter 12 and 13 filings, debtors do not have to liquidate their assets -- they actually get to keep everything, not just the items that meet the legal exemption.
In most Chapter 12 and 13 cases, the debtor is repaying only a percentage of what he or she actually owes -- sometimes as little as 30 cents to 50 cents on the dollar!
Chapter 11 bankruptcy is very similar to Chapter 13. The main difference is that there is no limit regarding the amount of money owed by the debtor. Originally only intended for large corporations, individuals can now file Chapter 11 as well.

Filing for bankruptcy is not to be taken lightly. It affects your credit rating for many years. The decision to file is best made under the counsel of a financial planner and/or a legal representative.

Answer 2

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RE Can you please explain the difference between Chapter 7, 11, and 13 Bankruptcy?

I am very interested in the different bankruptcy laws and how it can apply to a situation. This is for a friend. Please share with me your knowledge and experience (if applicable). Thank you in advance. Happy New Years! :-)

Answer 3

Chapter 7 - Liquidation: This chapter of the U.S. Bankruptcy Code provides for an orderly court-supervised means of selling certain assets to pay your creditors. In a Chapter 7 case, a trustee is appointed by the U.S. Bankruptcy Court to take charge of your "estate" consisting of all your assets. The law may allow you to keep some of your property. The trustee will sell the rest to pay your creditors. Unless someone objects, some or all of your debts will be discharged within a few months after the bankruptcy petition is filed.

Chapter 11 - Reorganization: This Chapter of the U.S. Bankruptcy Code is available to individuals, businesses and other entities, but is primarily intended to allow an ongoing business to restructure its debts. Successful reorganization is dependent on the debtor filing what is called a "reorganization plan" and obtaining the acceptance of creditors and approval by the court for such a plan.

Chapter 12 - Family Farmer: This Chapter of the U.S. Bankruptcy Code is designed to assist family farmers who are presently unable to pay their debtors but would like to pay creditors over a period of time. To be eligible to file under Chapter 12, you must have a true family farm operation and aggregate debts of less than $1,500,000 of which 80% must be directly related to the farming operation.

Chapter 13 - Adjustment of Debts for an Individual with Regular Income: This Chapter of the U.S. Bankruptcy Code provides a court-supervised method for a debtor to pay back creditors over a period of time of up to five years. The debtor files a plan for repayment with the bankruptcy petition or soon thereafter. Payments must begin within thirty days after the case has begun. The payments are made to a trustee who will begin paying the creditors after the plan has been approved by the court.
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Answer 4

financial disaster 7 you wipes out all your debt and you start up throughout financial disaster 13 you hold your automobile and homestead and basically pay a decrease mixed fee yet the two stay on your credit for 7 years