July 24, 2017

Chapter 7 vs. Chapter 13 vs. Chapter 11 bankruptcy

7, 11, and 13 refer to different parts, called chapters, of the bankruptcy law. Individuals may use Chapter 7 or Chapter 13. Chapter 7 bankruptcy gives you a fresh start by discharging your unsecured debts (such as credit cards and medical bills). It is sometimes called liquidation. Businesses may used Chapter 7 bankruptcy to liquidate or Chapter 11 bankruptcy to reorganize their business and repay their debts over a period of years under a “plan.” Business that want to continue as going concerns must use Chapter 11 bankruptcy.

There is also a very rare beast called “Personal Chapter 11.” This is used where a person has too much debt (the limit is roughly $600,000), or where the person needs a payment plan of longer than 5 years. The maximum payment plan allowed under Chapter 13 is 5 years. Under Chapter 11, there is no limit, but you have to convince the Judge that a longer payment plan makes sense, is likely to be successfully completed by the debtor, doesn’t unduly harm the creditors, etc.

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