There are two main bankruptcy options – Chapter 7 and Chapter 13. Let’s take a look at the differences to see which is the best for your situation.
For businesses, Chapter 11 is generally the best option.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy, also called liquidation or “straight bankruptcy,” is for individuals or businesses wishing to cease operations. A trustee will control all of your “non-exempt” assets, liquidate them, and distribute them to creditors to pay off debts. “No-asset” cases do not involve any liquidation, as all assets are exempt. Creditors will only receive a distribution if they file proof of claim in the bankruptcy court and the case involves non-exempt assets.
Under Chapter 7, you will usually receive a discharge releasing you from liability for certain debts, often a few months after filing a petition. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) implemented a “means test” to determine whether individuals qualify for relief under chapter 7. You may not be eligible if your income is above a certain amount.
Contact Spillane Law Offices if you believe Chapter 7 bankruptcy is right for you.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy allows individuals (not businesses) to keep many assets and restructure debt (other than primary residence mortgage) if you have a regular source of income. Our attorneys will work with a bankruptcy trustee to develop a plan allowing you to pay off your debt over a three to five year period. If your income is less than the state median, a three-year plan will be used to repay creditors, while a five-year plan will be used if your income is greater than the state median. At the end of that period, you will have discharged all your debt while keeping valuable assets such as a home or cars. Keep in mind you must be able to pay both the mortgage payment and a bankruptcy plan payment.
Chapter 13 differs from Chapter 7 in several ways. It can be used by debtors who do not qualify for chapter 7 under the means test. The chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor’s anticipated income over the life of the plan. Unlike chapter 7, you must complete the payments required under the plan before any discharge is received. The discharge is also somewhat broader (more debts are eliminated) under chapter 13 than under chapter 7. You will have no direct contact with creditors, and are protected from lawsuits, garnishments, and other creditor actions while the plan is in effect.
Contact Spillane Law Offices if you are considering a Chapter 13 bankruptcy or have questions about the process or whether it is the right option for you.
Chapter 11 Bankruptcy
Chapter 11 Bankruptcy gives businesses the opportunity to continue operations while debt is restructured. The goal of a chapter 11 bankruptcy filing is to work through all of your debt problems and emerge in a stronger financial situation.
Contact Spillane Law Offices if your business is struggling financially or you have questions about Chapter 11 bankruptcy.