Bankruptcy Options

Avoid Undesired Consequences by Choosing the Right Type of Bankruptcy Relief

“Choosing the correct bankruptcy chapter is essential.”

Essentially, bankruptcy offers two options — liquidation and reorganization. While the principles of bankruptcy are the same for each, choosing the correct option is essential. When going to bankruptcy court, it is also important to have an experienced attorney there who will fight for your rights from beginning to end.

Consumer Bankruptcies

Typically, consumers will seek one of two types of bankruptcy relief — Chapter 7 or Chapter 13.

Chapter 7

In a “straight” liquidation bankruptcy, also known as a Chapter 7, a Trustee is appointed to gather all of the debtor's assets to pay the creditors. However, the law allows an individual debtor certain exemptions — meaning the debtor can keep certain property such as a car, household goods and furnishings, clothing, and (in most cases) jewelry, as well as a limited amount of equity in their house. If successful, a Chapter 7 can discharge most, if not all, of your debts to allow you the fresh start you deserve.

Chapter 13

A Chapter 13 reorganization is available to individuals with regular income. It allows you to get your finances in order by proposing a debt-restructuring plan that is subject to approval by your creditors and the bankruptcy court. This often includes eliminating penalties, reducing or eliminating interest rates, and sometimes even consolidating debts.

In a Chapter 13 case, the debtor keeps all of his or her property and proposes a 3- or 5-year plan to pay creditors — either in full or in part. The process is supervised by a Chapter 13 Trustee who oversees the debtor's income and expenses and distributes plan funds to creditors. Upon completion, any remaining debts get discharged. There are certain debt ceilings above which a debtor is ineligible for a Chapter 13.

While most individuals will file a Chapter 7 or 13, another type of reorganization — Chapter 11 — is also available to both individuals and businesses. A Chapter 11 is similar to a Chapter 13 in that it allows the debtor to keep property and propose a plan to pay debts in full or in part, but numerous requirements make Chapter 11 much more complicated and expensive than Chapter 7 or 13.

Business Bankruptcies

Unlike individuals, businesses that want to file bankruptcy and remain in business must file a Chapter 11 reorganization. A business Chapter 7 requires the bankruptcy trustee to liquidate the business to pay the creditors and, unlike an individual Chapter 7, does not allow the business to exempt any assets.

In a Chapter 11, the principals of the debtor act as a “debtor in possession.” This means they take on fiduciary responsibilities to the creditors and the bankruptcy court — including following all bankruptcy rules and filing monthly operating reports. The U.S. Trustee's office oversees all Chapter 11 cases to ensure compliance.

Pursuant to 11 U.S.C. § 528 we are required to state that bankruptcy relief is provided in accordance with Title 11 of the United States Code. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.