Deciding whether to file a Chapter 7, Chapter 13 or Chapter 11 bankruptcy petition isn’t always a straightforward task. The best choice for you and your family and/or business will depend on your financial situation, the type of debt you have and your long-term financial goals.
Each type of bankruptcy offers different protections and results in different consequences. As a result, understanding the distinctions between these opportunities is going to be important before you commit to any particular plan of action.
Chapter 7 bankruptcy
Chapter 7 bankruptcy is typically the preferred option for individuals who don’t earn much income and small businesses that cannot reasonably be expected to repay their debts. It allows for the discharge of most unsecured debt, including credit card debt, medical bills, vendor invoices and personal loans, giving a filer a fresh start. If a business files for Chapter 7, the expectation is generally that the business winds down during the bankruptcy process.
Not everyone qualifies for Chapter 7. To be eligible, you must pass a means test, which examines your income relative to the median income in your state. If your income is too high, you may not qualify for Chapter 7 and might need to consider Chapter 13. But, if you do qualify, know that the process typically lasts about four to six months, and at the end of it, it is likely that most of your unsecured debts will be discharged, and you will no longer be legally obligated to pay them.
Chapter 13 bankruptcy
Chapter 13 bankruptcy is designed for individuals with access to a regular income, and who can afford to repay some or all of their debts via a structured repayment plan over three to five years. This type of bankruptcy is generally best for people who are behind on mortgage payments or car loans and want to catch up on missed payments to avoid foreclosure or repossession. Chapter 13 also benefits those with debts that are not dischargeable under Chapter 7, such as certain tax obligations or student loans. At the end of the repayment period, remaining eligible unsecured debts are discharged by the court.
Chapter 11 bankruptcy
Chapter 11 bankruptcy is primarily utilized by businesses. This form of bankruptcy allows for the reorganization of debts while business operations continue. It involves creating a reorganization plan to restructure debts, which must be approved by creditors and the court. While this process can take longer than other forms of bankruptcy, Chapter 11 provides flexibility, allowing debtors to negotiate with creditors and restructure their finances while staying in control of their assets.
These basics only scratch the surface of what makes each chapter of the U.S. Bankruptcy Code distinct. If you need help determining which kind of bankruptcy to file, contact the Quinn Law Firm today at 814-833-2222 for assistance. We look forward to hearing from you.
