Our Bankruptcy Blog

The Differences Between Chapter 7, 11, and 13 Bankruptcy

In the United States, individuals, married couples and businesses are allowed to file for bankruptcy. Filing for bankruptcy involves a complex and detailed legal process that is designed to reduce, restructure, or eliminate debts.

Declaring bankruptcy means you will be protected from creditors filing lawsuits against you or entering liens against your property. It will also put an end to the constant phone calls, letters, and emails. Likewise, it stops other problems such as loss of utilities, wage garnishment, and eviction.

There are three main types of bankruptcy filings:

  • Chapter 7 – Liquidation of debts
  • Chapter 11 – Reorganization of debts
  • and Chapter 13 – Adjustment of debts

There is also a Chapter 12. It is, in essence, the same as a Chapter 13, but is only for family farmers.

Filing For Chapter 7 Bankruptcy

Most people filing for Chapter 7 Bankruptcy are hoping for relief of all debt and a new financial slate.

When Chapter 11 is filed, the debtor is assigned a court-appointed trustee. The trustee will be responsible for the sale of the debtor’s non-exempt assets. Examples of non-exempt assets are things like cash, bank accounts, second homes, extra vehicles. These items will be liquidated, and proceeds are used to pay the trustee and administrative fees. Any remaining proceeds pay certain creditors a portion of the debt.

Assets that are exempt from being sold to repay debt include a primary residence, a vehicle used for work, pensions, welfare, retirement savings, and Social Security.

When Chapter 7 is filed, you cannot file for bankruptcy again for at least seven years. If debts are not forgiven in a prior filing, they cannot be forgiven in a future filing.

Also, some debts are simply not allowed to be forgiven. These include child support, alimony, and taxes. Likewise, student debt is often not forgiven.

Filing For Chapter 11 Bankruptcy

Chapter 11 Bankruptcy was designed for businesses. It allows a company to keep its doors open and continue to do business while its debts and assets are restructured to pay off creditors.

During Chapter 11, the court helps a business restructure its debts and obligations. Any plan, submitted by the debtor or the creditor, must be in the creditors best interest.

In most cases, the business is allowed to operate as usual. However, in cases of fraud or gross incompetence, the court will appoint a trustee to run the company during proceedings.

During proceedings, many business decisions must be approved by the court. These include things like the sale of assets, starting or ending a rental agreement, expanding business operations, and other decisions.

Chapter 11 has been filed by many major U.S. companies, such as General Motors, Circuit City, and United Airlines. Likewise, it is filed by thousands of other companies of all sizes, and in rare cases, by individuals.

Filing for Chapter 13 Bankruptcy

Chapter 13 bankruptcy is for people who are earning a regular income. It allows them to repay all or part of their debt over three to five years while applying all their disposable income to debt reduction.

During this time, creditors must cease starting or continuing collection efforts.

The debtor submits a plan of debt reorganization that will protect assets from repossession or foreclosure. This means that as long as the debtor can pay regular mortgage payments, they have the opportunity to keep their home.

As long as the petitioner has no more than $394,725 in unsecured debt, and no more than $1,184,200 in secured debts, they can file for Chapter 13.

Filing for Bankruptcy in Jacksonville, FL

We understand the struggles and anxiety that come with mounting bills and debt. Filing for bankruptcy can help you or your business get back up on your feet.

Our lawyers will be with you every step of the way. We’ll discuss which Chapter is best for you and guide you through this journey. Even better, we offer a complimentary credit rebuilding program to each of our clients so they can not only end their debt, but come out of the bankruptcy on the right track.

Claiming bankruptcy doesn’t just end after filing, you need to follow the right steps to get back on your feet again.

Contact us today for a free consultation to get the relief you’ve been hoping for.

Parker and DuFresne

Parker and DuFresne