What Homeowners and Business Owners Should Know About Chapter 7, Chapter 11, and Chapter 13 Bankruptcy

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When many people hear the word “bankruptcy,” they might think of the same thing: the loss of all of a person’s assets. However, this isn’t always how bankruptcy works, and many times it can actually help a person far more than hurt them. Liquidating an individual’s or business’s debt in a Chapter 7 bankruptcy, for instance, can end the long and frustrating debt collection process, and a reorganization of bankruptcy in Chapter 11 or Chapter 13 can make paying down debt easier and more manageable.

If you’re considering working with a bankruptcy lawyer to figure out what to do about your debt, it is crucial to understand the differences between Chapter 7, Chapter 11, and Chapter 13 bankruptcy. Here are some of the main characteristics of each:

Chapter 7 Bankruptcy
Both individuals and businesses are able to file for Chapter 7 bankruptcy in the United States. Chapter 7 is a liquidation of a debtor’s assets; whatever can be sold will be in order to pay off banks or other creditors. Ultimately, it will eliminate all of a person’s debt, but their unsecured assets will be lost. In other words, if a person hasn’t finished paying off a mortgage, that home can be seized during a bankruptcy to pay off some or all debt. While Chapter 7 is a quick and easy option for those who have no resources to pay off their debt and only costs around $300 to file, it can have a devastating effect on one’s credit score. In fact, it can take up to a decade before a bankruptcy will disappear from a credit report, and it can take several months to a year or more before a debtor’s credit can begin to rebuild.

Chapter 11 Bankruptcy
Chapter 11 bankruptcy is for businesses only. Unlike Chapter 7, Chapter 11 is actually used to reorganize debt. This can help business owners pay off any debt they may have without potentially losing their business, their property, and other financial assets they may possess. Bankruptcy attorneys who handle Chapter 7 and 11 cases will be able to give you more advice on how to prepare your business for a bankruptcy.

Chapter 13 Bankruptcy
Chapter 13 is a reorganization of debt for individuals, meaning that they will have a certain amount of time, usually about three to five years, to pay off their debt. These plans are made to be manageable and don’t typically result in the foreclosure of a home. Filing Chapter 13 bankruptcy costs around $1,500 to $3,000 in the United States, and although that’s more than Chapter 7, it is a small price to pay for reorganizing debt. The main difference between Chapter 7 and 13 bankruptcy is that Chapter 13 doesn’t result in the loss of one’s home, vehicles, or other assets.

Do you have any general questions about Chapter 7, 11, and 13 bankruptcy? If so, leave a comment below. To discuss the personal details of your case, be sure to speak to a bankruptcy attorney near you. Continue.

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