All bankruptcy petitions provide an opportunity for honest individuals to climb out from under debt with a clean slate. However, each has different requirements and outcomes as well as advantages and disadvantages. Read on to learn the major differences between Chapters 7, 13, 11, and 12.
Chapter 7
Who can file Chapter 7?
Under Chapter 7, any individual, partnership, or business entity may file for debt relief regardless of the amount of debt or whether the debtor is solvent or insolvent. However, complete discharge of debts is only available to individual debtors.
What eligibility requirements must be met?
The debtor must submit financial records to a Means Test to determine if he is eligible for relief.
How is debt resolved under Chapter 7?
Chapter 7 is known as “liquidation bankruptcy” or “straight bankruptcy” because the debtor liquidates exempt assets to completely discharge debt.
What are the advantages of Chapter 7 bankruptcy?
Chapter 7 gives honest debtors a chance at a clean slate. It’s more fast-paced than other chapters, which allows debtors to quickly discharge debts and begin to rebuild their credit scores immediately.
What are the disadvantages?
Chapter 7 filing means liquidating property that you may value unless you can afford to schedule payments to keep said property.
Not all debts are eligible for discharge under Chapter 7. Most taxes, domestic support obligations, and school loans are exempt from discharge, and bankruptcy does not eliminate a lien on a property.
Chapter 13
Who can file Chapter 13?
Chapter 13 is often called a “wage earner’s plan” because it is designed for individuals with a regular income who have the financial means to repay their debts but require more time to do so.
What eligibility requirements must be met?
Individuals must pass a Means Test that demonstrates they will be able to pay down debts, and they must be current on tax filings. Chapter 13 also has debt limits that debtors can’t exceed. Unsecured debt, e.g. credit card bills and personal loans, may be no more than $394,725 and secured debt, e.g. mortgages and vehicle loans, may be no more than $1,184,200. Corporations and partnerships are not eligible under Chapter 13.
How is debt resolved under Chapter 13?
Chapter 13 bankruptcy allows debtors to resolve debts over three to five years via a repayment plan. An impartial trustee is appointed to administer the case, collect payments from the debtor and distribute biweekly or monthly payments to the creditors.
What are the advantages of Chapter 13 bankruptcy?
Unlike Chapter 7, Chapter 13 allows debtors to keep valuable assets, and filing Chapter 13 initiates an automatic stay that prevents creditors from taking action to collect debts. For struggling homeowners, Chapter 13 may suspend foreclosure proceedings.
What are the disadvantages?
Chapter 13 does not eliminate debts swiftly the way that Chapter 7 does. Instead, debtors must repay delinquent debts over time. Any missed or late payments can result in the case being dismissed, which puts the debtor back at square one. Because Chapter 13 is more complex and time-consuming, they are more expensive to execute.
Chapter 11
Who can file Chapter 11?
While Chapter 11 bankruptcy usually involves businesses, individuals can file Chapter 11 to reorganize and repay debts too high to qualify for Chapter 13 relief.
What eligibility requirements must be met?
Unlike Chapter 13, there’s no cap on any debt amount owed by debtors who file Chapter 11. The income requirements are determined by a pared-down Means Test compared with the more stringent tests used by Chapters 7 and 13.
How is debt resolved under Chapter 11?
Assets may be sold and finances restructured to pay off debts according to a payment plan filed by the debtor and approved by creditors.
What are the advantages of Chapter 11 bankruptcy?
Chapter 11 provides debt relief for individuals with limited income and higher than average debts. There are no time limits on Chapter 11 repayment plans, and debtors may benefit from more favorable interest rates or a reduced debt balance.
What are the disadvantages?
Because a Chapter 11 bankruptcy is much more complicated than Chapters 7 or 13, the legal fees can be exorbitant, and major financial decision-making becomes the jurisdiction of the bankruptcy court and creditors.
Chapter 12
Who can file Chapter 12?
Chapter 12 bankruptcy is only available to family farmers and family fishermen with a regular annual income,
though a corporation or partnership may qualify for Chapter 12 under some circumstances.
What eligibility requirements must be met?
Individuals and families who file a Chapter 12 petition will be required to meet income and debt requirements related to the expenses associated with operating their farming or fishing operation.
How is debt resolved under Chapter 12?
Debtors propose a repayment plan to discharge debts over a period of three to five years. Once the repayment plan is confirmed by the bankruptcy court, a trustee makes regular payments to creditors.
What are the advantages of Chapter 12 bankruptcy?
Chapter 12 bankruptcy provides flexibility for farmers and fishermen whose business models are affected by seasonal highs and lows. Payments can be scheduled to coincide with seasonal earnings.
What are the disadvantages?
As with Chapters 13 and 11 petitions, Chapter 12 repayment plans must be paid diligently to avoid dismissing the petition.
Still not sure which is right for you? Get in touch with the Law Offices of Jeffrey Lohman today for help deciding which petition will discharge your debts with the greatest efficacy.
The Law Offices of Jeffrey Lohman, P.C. is considered a debt relief agency pursuant to federal law. We are attorneys who help people file for bankruptcy relief under the Bankruptcy Code.