The Differences Between Chapter 7, 11, And 13 Bankruptcy
There are three main types of bankruptcy: chapter 7, chapter 11, and chapter 13 bankruptcy. Each type of bankruptcy offers a different form of repayment and protection to the person or business declaring it. If you are in dire financial straits, understanding the different types of bankruptcy can help you make an informed decision that will help protect as much of your financial assets as possible.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, requires the sale of your assets to repay your debts. Those who qualify for chapter 7 bankruptcy have little to no disposable income, and a trustee is appointed to look after your case and ensure that your creditors are properly repaid in the order that they loaned money to you. The trustee will also be in charge of selling your assets off to repay your creditors. Some assets will be exempted from being sold, such as your home and primary vehicle, as well as life insurance or retirement funds. This will vary by state to state, however, so check your local laws. Once you declare chapter 7 bankruptcy, your debts are wiped clean.
Chapter 11 Bankruptcy
Also known as rehabilitation bankruptcy, chapter 11 bankruptcy gives you time to restructure your debt and try to repay your loans on a different payment and interest schedule than originally agreed upon. Originally meant for firms and corporations, individuals can now declare chapter 11 bankruptcy as well. The total amount of money that needs to be repaid may be reduced to a fraction of what the original debt was. A trustee will be appointed to develop a payment plan and oversee your repayments, and ensure that you are still earning regular income. In order to qualify for chapter 11 bankruptcy, you must be earning a steady income, and have some disposable income that you can put towards debt repayment. There is no limit to the amount of money that you owe; you can always declare chapter 11 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, sometimes referred to as reorganization bankruptcy, is exactly the same as chapter 11 bankruptcy, but you must have less than $269,250 in unsecured debt (credit card debt, health care bills, utility bills, etc.) and less than $807,750 in secured debt (mortgages, car payments, other asset backed loans). The main difference, and the reason why you would want to declare chapter 13 bankruptcy over chapter 11 bankruptcy, is that you can submit your own repayment plan, though the trustee may object. This can allow you to tailor your repayment schedule to your income and needs accordingly.