Understanding Chapter 11 vs Chapter 7 Bankruptcy
Bankruptcy is a traumatic experience. Some file it after a series of bad investments or business decisions. For others, it comes as a consequence to actions they are in no way to blame for, like losing a job or getting defrauded by an investor. To these individuals, bankruptcy acts to shine a ray of hope, offering them an opportunity to get out of debt when the debt itself has become seemingly insurmountable great. Yet before getting their, individuals have to figure out what type of bankruptcy they’d like to file for and what the difference is in Chapter 7 vs. Chapter 11 bankruptcy.
Chapter 7 and Chapter 13 Bankruptcy
Though some especially high income individuals can apply for Chapter 11 bankruptcy, it is mainly intended for businesses. The vast majority of people should instead file for either Chapter 7 or Chapter 13 bankruptcy. Here are a few general facts to help you better understand Chapter 7 vs chapter 11 bankruptcy:
• Chapter 7: This type of bankruptcy has a person’s worth liquidated to pay off their existing debt, selling your assets off in order to get cash for creditors. This done by a court appointed Bankruptcy Trustee, not by the indebted persons themselves. Certain goods are protected and cannot be liquidated, especially if the state you live in follows federal bankruptcy exemptions (not all states do). Those assets can include clothing and other household goods. Unsecured debt such as credit card debt can be paid off in a matter of months after liquidation occurs.
• Chapter 13: This type of bankruptcy is sometimes called “payment plan bankruptcy” and does not involve liquidation. Instead, it involves a court mandated plan to pay off your debt in monthly installments over the course of several years, usually from three to five. Here, your assets are not liquidated since the money going to paying off your debt comes out of your income, not from liquidation sales.
Eligibility and Benefits of Chapter 7 vs Chapter 11
One of the most important differences in Chapter 7 vs. Chapter 11 bankruptcy concerns their eligibility. Only certain individuals can qualify for Chapter 7 bankruptcy, and before you file for either, you should better understand the benefits of Chapter 7 vs Chapter 11 or vice-versa.
• Chapter 7: This is bankruptcy intended for persons with high amounts of unsecured debt, such as credit card bills and medical bills. Since you may lose your assets, it is important that you don’t own a lot of property. Remember that some things like student loans, child support and tax debt will need to be continued to be paid, despite Chapter 7 bankruptcy. The biggest difference in Chapter 7 vs. Chapter 11 bankruptcy is that only certain individuals qualify for Chapter 7. Your income must be below the national medium, or otherwise to qualify you should take the Bankruptcy Means Test, which varies from state to state.
• Chapter 11: This is for those who don’t qualify for Chapter 7 because their income is too high. It may be beneficial regardless for those with a lot of property, since they may get to keep it, and for those whose debts are not primarily unsecured but for mortgages or student loans, for example.