BANKRUPTCY

Chapter 7

Designed for individuals or businesses that do not have the ability to pay their existing debts. The goal of an individual Chapter 7 filing is to obtain a “discharge” of existing unsecured debts. Obtaining a discharge in bankruptcy means that you are no longer legally required to repay your unsecured debts.

Certain debts, however, may not be dischargeable, such as certain taxes, matrimonial obligations or student loans. A Chapter 7 bankruptcy is frequently called “a liquidation bankruptcy” because any assets which are not exempt (protected) could potentially be liquidated (sold) in the bankruptcy process. In a Chapter 7 case, a Chapter 7 Trustee is appointed to administer the case, which could include taking control over and, if necessary, selling any property that is not exempt under Federal law.

Chapter 11

Most commonly utilized by businesses that are experiencing financial distress but would like to keep their businesses operating. It is the only Chapter in bankruptcy wherein a business can continue operations. Chapter 11 provides a mechanism by which a business can restructure its finances and propose a Plan for paying creditors in an orderly fashion, while simultaneously providing its business with financial relief. A Chapter 11 Plan will have to meet numerous requirements of the United States Bankruptcy Code and be approved by the United States Bankruptcy Court. In a Chapter 11 case, it is possible for a business entity to permanently reduce or discharge certain obligations, sell off unneeded assets and/or downsize its operations. A Chapter 11 bankruptcy allows a Debtor to tailor its specific Plan to the needs of its unique business.

Chapter 11 can also be utilized by individuals with a high income or with valuable assets that they wish to retain. Additionally, Chapter 11 can be utilized by those individuals who do not qualify for Chapter 13 (generally because they have too much debt). Similar to a business Debtor, an individual Chapter 11 Debtor must propose a repayment plan, wherein his creditors will be paid some or all of their claims. This repayment plan can provide for the individual to retain some or all of his assets. Individuals may also propose Plans that provide for an orderly liquidation of certain assets. Whether a business or an individual files a Chapter 11, the process, although time consuming, can often provide a Debtor with substantial financial relief.

Chapter 13

Applies to individuals who have regular income and the ability to repay all or a portion of their debt over time. Chapter 13 generally allows individuals to keep their property by repaying certain creditors out of their future income. In Chapter 13, an individual proposes a plan for repayment, which must be confirmed (approved) by the United States Bankruptcy Court. The proposed plan is tailored to the individual’s specific financial circumstances and ability to repay outstanding debt. The Plan must meet certain requirements set forth in the United States Bankruptcy Code and the Plan duration must be a minimum of three (3) years and a maximum of five (5) years. An individual in Chapter 13 receives a discharge of his or her debts, only after such individual has completed all plan payments and fulfilled any other requirements provided for under the confirmed Chapter 13 Plan.