Bankruptcy filings fall in one of several categories. Each category is named after the chapter of the U.S. Bankruptcy Code that describes it. Overall, the bankruptcy chapter you file under mainly depends on your income, your debts, your assets, the type of debt (secured vs. unsecured) and your overall goal for filing bankruptcy.
Individuals mostly utilize Chapter 7 and Chapter 13, while Chapter 11 is mostly associated with businesses or very high earners. In a free consultation, we can help you decide if bankruptcy is right for you and which chapter you could file under. Based in Orlando, we represent people throughout Orange County and surrounding central Florida.
Chapter 7 bankruptcy is a process of liquidating a debtor’s nonexempt assets in order to pay off creditors. It is usually the choice of persons without a regular income and little to no assets and who have been unable to pay their consumer debt. The typical Chapter 7 debtor has large unsecured debt (such as credit card debt or medical bills) and hardly any assets. One must pass a financial means test to be eligible for Chapter 7 bankruptcy.
Most of the person’s debts are discharged (wiped clean) while a trustee is appointed to manage the liquidation. You are allowed to keep exempt assets, which may include home equity, vehicle equity, household goods, life insurance not payable to the deceased’s estate, workers’ compensation benefits, 401(k) plans and IRAs. It’s perhaps unsurprising that the majority of Chapter 7 bankruptcies are no-asset cases, meaning there is nothing for the trustee to sell in order to repay creditors.
When filing with their district bankruptcy clerk, the debtor submits an official petition, financial history, schedules of liabilities and assets, schedules of income and expenditure, schedules of unexpired leases and contracts, and creditor mailing addresses. The schedules must contain accurate and complete information. A debtor risks being charged with perjury if some information is false or has been deliberately excluded. Both dischargeable and nondischargeable debts should be included.
Filing automatically prohibits creditors from collection actions including lawsuits, written communication and phone calls. The trustee appointed by the court notifies all creditors on the bankruptcy filing. A 341 meeting between the debtor, creditor and trustee is arranged (the meeting is discussed in more detail further down this page). If accepted by the judge, debtors will receive their discharge (copied to their creditors) about four months after filing.
Chapter 13 bankruptcy is a mechanism for debt reorganization and repayment. It involves the development of a three-to-five-year court-enforced debt repayment plan. The debtor commits to pay part or all their debt using their future income. A person will not qualify for this type of bankruptcy if their debt is too large or their income is too low.
It is the best alternative for persons who want to safeguard nonexempt assets that would otherwise be lost in a Chapter 7 bankruptcy. The debtor is probably running behind on their business or mortgage payments but has sufficient income to eventually catch up under the right conditions. The filing halts late charges and interest on the unsecured debt. It also suspends levying of late charges on car loans, mortgages and other forms of secured debt.
Chapter 13 filing begins in much the same way as Chapter 7 bankruptcy. The debtor files a petition, schedules and a statement of monthly income. However, instead of undergoing a means test, the person provides a calculation of disposable income and a repayment plan. The plan details what, when and how creditors will be repaid.
This is followed by a 341 meeting with creditors. If the plan is accepted by the judge, court-appointed trustees will be in charge of the distribution of payments to creditors as means of ensuring that the plan is being honored. Creditors who intend to participate in the repayment distributions should file their claim within 90 days after the 341 meeting. If the court rejects the plan, the debtor may opt to either submit a modified plan or convert the case into a Chapter 7 liquidation.
Creditors are obliged to accept the repayment plan. The total amount the creditors receive under a Chapter 13 filing must at least equal what they would have received under a Chapter 7 filing. Once the plan is in force, the debtor is not allowed to take on new debt without the trustees’ approval.
Chapter 11 bankruptcy is the most complex and expensive type of bankruptcy. It is often used as a last resort when no other avenue would be suitable. It is usually filed by businesses as means of reorganization either through debt restructuring, product pricing adjustment or the sale of non-core assets to pay off debt. In extremely rare instances, Chapter 11 bankruptcy may be filed by individuals who have very large debts that disqualify them from filing Chapter 13 bankruptcy.
The debtor submits a reorganization plan to the court. The plan may include renegotiating debts and selling off non-core divisions. If the debtor fails to submit a plan, the judge allows the creditors to do so instead. Once the judge agrees to the plan, the debtor is prohibited from making certain major decisions without the court’s approval. These include asset sales, rental agreement initiation or termination, and expansion of business operations.
Some of America’s best-known corporations have previously filed for Chapter 11 bankruptcy: Delta Airlines, United Airlines, Chrysler, General Motors, Kodak and Macy’s. Usually, the company will continue running its operations largely as usual. However, in cases involving dishonesty, gross incompetence or fraud, a court-appointed trustee will be tasked with managing the business during the proceedings. Businesses will emerge from bankruptcy a few days to two years after filing.
Bankruptcy can feel like a big step. You may be embarrassed about your financial situation or unsure if you qualify. At Badgley Law Group, we are not here to judge, only to help. In a free initial consultation, one of our attorneys can help you decide whether to file, when to file and which chapter is best suited to your situation. We have helped hundreds of people like you put their debts behind them.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.