Types of Bankruptcy
Chapter 7 Bankruptcy “Liquidation”
A chapter 7 bankruptcy case does not involve the filing of a repayment plan as in chapter 13. In exchange for discharging certain debts a debtor puts up his/her non-exempt assets for possible seizure and sale to generate money for creditors. Many debts like credit cards debt and medical debt are discharged and do not have to be paid back. Debtors with a small amount of assets often don't lose anything. Debts such as a home mortgage notes or car notes may be reaffirmed and continued to be paid. Chapter 7 can give a debtor a relatively quick "fresh start".
Chapter 11 Business Reorganization
Chapter 11 cases are primarily used for businesses suffering financial difficulty where the business can still be sustainable if its debt payments can be reduced or postponed. The debtor remains in control of its business as a “debtor in possession.” Chapter 11 requires the business to file a plan of reorganization to attempt to restructure its debts.
Chapter 13 Individual Debt Adjustment
Under Chapter 13, the debtor proposes a plan to pay the debtor's creditors over a 3 to 5 year period through a consolidation. In general, the individual gets to keep his/her property, and his/her creditors may end up with less money than they are owed. A debtor may also stop foreclosure proceedings on the debtor's real estate and propose to catch up missed payments through the repayment. The debtor may also save vehicles from being repossessed by filing a chapter 13.
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