Bankruptcy Options
CHAPTER 7 AND 13 BANKRUPTCY OPTIONS
The two most common types of bankruptcy filed by consumers are Chapter 7 and Chapter 13. A bankruptcy attorney can help you determine which is best for you based on your financial situation: your income status, how much debt you have, and whether you want to keep your house or cars.
A Chapter 7 Bankruptcy does not involve any court protected repayment plan and will legally eliminate your unsecured dischargeable debt such as credit cards, medical bills, most judgments and garnishments, repossession debt, eviction or broken lease debt, some taxes, and past due utilities. The debt is eliminated through a legal discharge. A Chapter 7 discharge is not an absolute right, but most individuals experiencing financial difficulty will qualify.
In Chapter 7 you will be required to continue making payments on your secured debt, such as house and car payments, in order to keep the collateral securing the loan (the house or car). Your agreement to continue making these payments is called a reaffirmation agreement. In Chapter 7, you do not have a right to modify your car payments. (Chapter 13 does provide this right through a debt adjustment. For those with high car payments a Chapter 13 may be more helpful.)
Chapter 13 is a court protected repayment plan where individuals are allowed to modify loan agreements and even eliminate significant portions of their unsecured debt. Many people mistakenly believe that Chapter 13 requires that all creditors be paid in full with interest. Our clients are relieved to learn that Chapter 13 allows for the repayment of only the percentage of credit cards and other unsecured debt that an individual or family can reasonably afford. Additionally, Chapter 13 allows for the modification of personal property loans, such as cars. As a result, an individual can actually end up paying less per month in Chapter 13 than in Chapter 7 because of the ability to modify certain secured loans in Chapter 13. For instance, the interest rate on vehicles can often be lowered and the amount paid back through the payment plan is based on the current Blue Book value of the car or the amount owed on the loan, whichever is lower. If you owe more than your car is worth ("upside-down"), Chapter 13 can be helpful.
Federal bankruptcy laws determine how companies go out of business or recover from crippling debt. Businesses can file for bankruptcy under Chapter 7, 11, or 13, depending on the way the business is structured and other factors. An attorney who practices bankruptcy law can help you determine which is the best method of dealing with overwhelming business debt.
Under Chapter 7, the company stops all operations and goes completely out of business. A trustee is appointed to "liquidate" (sell) the company's assets and the money is used to pay off the debt, which may include debts to creditors and investors.
Most publicly held companies will file under Chapter 11 rather than Chapter 7 because they can still run their business and better control the bankruptcy process. Chapter 11 provides a process for rehabilitating the company's faltering business. Sometimes the company successfully works out a plan to return to profitability; sometimes, in the end, it liquidates. A bankrupt company, the "debtor," might use Chapter 11 of the Bankruptcy Code to "reorganize" its business and try to become profitable again. Management continues to run the day-to-day business operations but a bankruptcy court must approve all significant business decisions. Under Chapter 11 reorganization, a company usually keeps doing business and its stock and bonds may continue to trade in our securities markets.
Businesses run as a sole proprietorship or as a corporation, can use Chapter 13 to stay in business and pay off its debts. Chapter 13 is the proper option for most businesses experiencing debt problems that want to continue operations. It can also provide a solution for business owners who have personal debt related to the business.
Managing partner Marcus Leinart is dedicated to helping people who are facing financial difficulties to get back to their lives in a dignified manner. A consultation is free and can be conducted over the phone.
Each financial situation is different. Contact us today at 1-800-518-DEBT (3328) for a free, no obligation consultation. You can also send us an email, submit an online case evaluation, or schedule an online appointment.