MANNERS & MALONE, PLLC

Following are explanations of the most commonly utilized forms of bankruptcy. This information is not to used as legal advice in any way, but rather to provide basic explanations of different forms of bankruptcy that may be available to you.   

Chapter 7

This form of bankruptcy is most commonly referred to as bankruptcy “liquidation.” Primarily, individuals who wish to free themselves of debt, file under Chapter 7. Can a business or corporation file for bankruptcy under Chapter 7? The answer is, “Yes.” However, individuals most commonly file under Chapter 7. An individual or business filing for bankruptcy is referred to as a “debtor.”

Under Chapter 7, a United States Bankruptcy Trustee is appointed to take over your property, or your “estate.” You may be able to keep some personal items, and certain property of value will be sold or turned into money to pay your creditors. You also may be able to keep possession of your house under Chapter 7 depending on your specific situation, and the State in which you live.

Upon filing for bankruptcy, there is an “automatic stay” placed against your creditors, preventing them from contacting you for debt collection purposes. Certain debts cannot be discharged, such as student loans and taxes, but as always, some exceptions apply! Completion of the bankruptcy results in the “discharge” of your debt, allowing you to get a fresh start, maintain your dignity, and have the essentials needed to build a new life.

Under the Bankruptcy Act of 2005, credit counseling may be required or other options may be required. Contact our office for a free initial consultation to see if Chapter 7 bankruptcy is right for you.

A case filed under Chapter 11 is frequently referred to as a bankruptcy “reorganization.” Chapter 11 is most typically used to reorganize a business, which may be a corporation, sole proprietorship, or partnership. The costs associated with Chapter 11 reorganization are normally significantly higher than that of Chapter 7 liquidation due to complexity and procedural requirements.

In chapter 11, you may continue to operate your business, but your creditors and the court must approve a payment plan to pay your debts. There is no trustee unless the judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property. A Liquidation Analysis is performed taking information into consideration such as income and expenditures, assets and liabilities, and earnings projections.  

Filing for bankruptcy under Chapter 11 may be a viable option for your business if you need reorganization or relief of current debt service payments. Contact our office for a free initial consultation to see if Chapter 11 bankruptcy is right for you.

Wage earners and small businesses typically use Chapter 13 bankruptcy. A debtor can usually keep their property, but must have a source of regular income and agree to pay part of that income to creditors. This form of bankruptcy is quite different from Chapter 7 bankruptcy (which eliminates most of your debts). The court must approve of the debtor’s financial budget and a timely repayment plan to pay some or all of what is owed to creditors over time. A trustee is appointed and will collect the payments from the debtor, pay the creditors, and make sure the debtor adheres to the terms of the Chapter 13 repayment schedule.

Bankruptcy relief is also provided for under Chapter 12 and Chapter 9 of the United States Bankruptcy Code for family farmers and fishermen, and for municipalities, respectively.